Corporate Restructuring: Causes, Measurement Methods and Effects

Corporate restructuring has been a very popular strategy for reinvigorating firms the world over. Highly diversified, poorly performing firms are using the strategy to restructure activities and unlock the hidden value. Against this background, it becomes pertinent to analyse the motives or reasons for the use of corporate restructuring by firms and empirical evidence relating thereto. The present paper aims to review the existing literature on causes, effects and measurement methods followed in evaluating the performance of restructured firms. Restructuring is viewed as process of unlocking the hidden value. Consequently, firms aim to improve the market valuation and financial performance.

Though there are both short-run and long-run methods of analyzing the performance of restructured firms the long-run methods are considered to be desirable in view of the fact that the benefits of restructuring are realized in the long-run rather than the short-run. The extent of benefits realized depends on the method of restructuring employed and the intensity with which the method is employed or used. In India, though several firms have employed restructuring methods, there exists no exhaustive study analyzing the performance of restructured firms for want of suitable data bases.