INTERNAL CORPORATE RESTRUCTURING - AN EMPIRICAL-ANALYSIS

Firms that alter their divisional configurations on average increase shareholder wealth. Gains appear to come from information about investment opportunities and increases in efficiency. Performance before the restructurings suggests poorly organized firms are motivated by market pressures to change their organizations. Change also occurs in healthy firms as part of the growth process. Restructuring often occurs where there is no evidence of takeover threats. While stock prices increase around the restructurings, there is a contemporaneous decline in earnings due to increased expenses. These findings appear inconsistent with the contention that the market pressures managers into focusing on short-run earnings. © 1990.