Graduation Year

2017

Date of Submission

12-2016

Document Type

Campus Only Senior Thesis

Degree Name

Bachelor of Arts

Department

Economics-Accounting

Reader 1

Matthew Magilke

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© 2016 Liberty N Ramsey

Abstract

The decision to restructure a firm is very difficult for many companies because it often has a big impact on the company financially and culturally. Restructuring is often a necessary decision for firms in financial distress, and my research seeks to determine whether the market reacts positively or negatively to restructuring charges over time. Much research has been done to determine whether restructuring creates value for the company and increases future performance, but less has been done to determine the stock market reaction that comes as a result of restructuring. Prior literature suggests that restructuring is often a positive decision for companies, which led to my hypothesis that stock price would increase more in companies that had higher levels of restructuring charges over the period measured. I measured companies’ restructuring charges as a percent of operating income over a ten-year period and compared those percentages to the change in stock price over that same period. My results suggest that companies who did not restructure, or recognized lower levels of restructuring charges, had higher positive increases in stock price than those that had higher levels of restructuring charges. Because this result is contrary to much of the prior research, investors’ reaction to restructuring should continue to be studied.

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