Does Retrenchment Boost Performance? Evidence from Fallen Angels

Karim Farroukh, Jennifer Koski and Ingrid M. Werner
Additional contact information
Karim Farroukh: U of Washington
Ingrid M. Werner: Ohio State U

Working Paper Series from Ohio State University, Charles A. Dice Center for Research in Financial Economics

Abstract: We study restructuring by firms whose stock prices experience a sharp decline to a low price level-fallen angels. In response to a price decline, firms can retrench by reducing investments and cutting the workforce, or increase leverage and investments hoping for lottery-like payoffs. We find that relative to a matched sample, fallen angels retrench. While retrenchment helps boost stock prices, reducing fixed assets and employment also increase firm risk, lower growth opportunities, and reduce the probability a firm remains listed. We find no consistent evidence that retrenchment actions undertaken by fallen angels affect future operating performance.

JEL-codes: G10 G30 G34 (search for similar items in EconPapers)
Date: 2021-06
New Economics Papers: this item is included in nep-bec and nep-cfn
References: Add references at CitEc
Citations:

Downloads: (external link)
http://dx.doi.org/10.2139/ssrn.3866579

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:ecl:ohidic:2021-09

Access Statistics for this paper

More papers in Working Paper Series from Ohio State University, Charles A. Dice Center for Research in Financial Economics Contact information at EDIRC.
Bibliographic data for series maintained by ().