Beyond Reverse Splits: How Do Fallen Angels Restructure?

Abed El Karim Farroukh, Jennifer Koski and Ingrid Werner

No 19362, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: Firms with very low stock prices face a unique set of frictions that affect trading and liquidity. We study the restructuring actions of firms whose stock prices experience a sharp decline to a low-price level – fallen angels. We find that, relative to a control sample, fallen angels implement more reverse stock splits. However, we find no significant relation between reverse splits and subsequent returns for fallen angels, and reverse splits are associated with negative future returns for control stocks. We therefore explore alternative restructuring actions and find that fallen angels cut investments in fixed assets and reduce employment more than control firms. Retrenching firms experience higher subsequent returns, but worse operating performance and higher asset volatility. Overall, our findings suggest that low-price firms must engage in actions beyond reverse splits to boost stock prices, and these actions are costly.

Keywords: Restructuring (search for similar items in EconPapers)
JEL-codes: G31 G32 (search for similar items in EconPapers)
Date: 2024-08
References: Add references at CitEc
Citations:

Downloads: (external link)
https://cepr.org/publications/DP19362 (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:cpr:ceprdp:19362

Ordering information: This working paper can be ordered from
https://cepr.org/publications/DP19362

Access Statistics for this paper

More papers in CEPR Discussion Papers from Centre for Economic Policy Research 33 Great Sutton Street, London EC1V 0DX, UK.
Bibliographic data for series maintained by CEPR ().