An Empirical Investigation of Corporate Asset Downsizing

43 Pages Posted: 12 Apr 2004

See all articles by Diane K. Denis

Diane K. Denis

University of Pittsburgh - Katz School of Business

Dilip K. Shome

Virginia Polytechnic Institute & State University - Pamplin College of Business

Date Written: April 2004

Abstract

We study 130 large asset downsizings in 1985-1994. We find that downsizings are most often accomplished by selling assets. The decision to downsize is negatively related to operating performance at both the firm and industry levels and is positively related to firm debt ratio and level of diversification. Following their downsizings, the sample firms are more focused, have lower debt ratios, and experience statistically significant increases in operating performance. These results suggest that large downsizings are efficient responses to declining circumstances. However, we also find that their occurrence is strongly dependent upon an active market for corporate control.

Keywords: Downsizing, Restructuring

JEL Classification: G34

Suggested Citation

Denis, Diane K. and Shome, Dilip K., An Empirical Investigation of Corporate Asset Downsizing (April 2004). Available at SSRN: https://ssrn.com/abstract=528262 or http://dx.doi.org/10.2139/ssrn.528262

Diane K. Denis (Contact Author)

University of Pittsburgh - Katz School of Business ( email )

368B Mervis Hall
Pittsburgh, PA 15260
United States
412-624-0296 (Phone)

Dilip K. Shome

Virginia Polytechnic Institute & State University - Pamplin College of Business ( email )

1016 Pamplin Hall
Blacksburg, VA 24061
United States
540-231-3607 (Phone)
540-231-3155 (Fax)

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