انضباط مدیریتی و تجدید ساختار شرکت ها پس از کاهش عملکرد

We examine the incidence of disciplinary events that reduce the control of current managers, and corporate restructuring among firms experiencing a large decline in operating performance during an active takeover period (1985–1988) and a less active period (1989–1992). We document a significant decline in the disciplinary events from the active to the less active period that is driven by a significant decline in disciplinary takeovers, those takeovers that result in a top executive change. Following the performance decline, however, there is a substantial amount of corporate restructuring, and a significant improvement in operating performance, during both the active and the less active takeover period. We conclude that, although some managerial disciplinary events are related to overall takeover activity, the decline in takeover activity does not result in fewer performance-enhancing restructurings following performance declines.

Poorly performing managers face disciplinary pressures from both internal and external corporate control mechanisms. An important element of this control process is the threat that if managers deviate from value-maximizing corporate policies, their control will be reduced. Consistent with this view, Jensen and Warner (1988) characterize top executive changes as `a key variable in understanding the forces disciplining managers'. In this paper, we focus on the three primary disciplinary events that represent explicit attempts to reduce or eliminate the control of current managers. These events are corporate takeovers, board dismissals, and shareholder activism. Using a sample of firms that experience a sharp decline in industry-adjusted operating performance, we provide evidence on (i) the frequency with which managers experience at least one of the above disciplinary events, and (ii) corporate restructuring and changes in operating performance following the performance decline. Our motivation for pursuing this investigation is threefold. First, although several studies provide evidence on each of these control-reducing disciplinary events individually, none address the more fundamental issue of how frequently managers face some threat to their control when they perform poorly. Second, because the frequency of one of the disciplinary mechanisms, corporate takeovers, fell considerably in the early 1990s, we are interested in whether this decline is associated with a corresponding change in the overall frequency of control-reducing disciplinary events in recent years. Third, because previous studies suggest a strong link between control-reducing disciplinary events and corporate restructuring, we are interested in whether any change in the frequency of disciplinary events over time has changed the manner in which firms address poor performance. Our sample consists of 350 firms that have total assets greater than $100 million, which achieve measurably high operating performance in one year, followed by a marked decline in performance the following year. The sample period, 1985–1992, encompasses an active takeover period (1985–1988) and a less active takeover period (1989–1992), thus allowing us to examine whether managerial discipline and corporate restructuring are linked with activity in the market for corporate control. We find that a substantial fraction of the sample firms experience control-reducing disciplinary events in the year of and the three years following the year of performance decline. In our sample, half of the firms are either the target of corporate takeover activity, are targeted by activist shareholders, or experience nonroutine turnover of the firm's top executive. Nonroutine turnover is defined as any change in the top executive of the firm except those due to death or illness, and those that are classified as normal retirements using the definition of Denis and Denis (1995). Defining disciplinary management turnover as either the nonroutine turnover of the top executive or a change in top executive following a takeover, we find that 36% of the sample firms experience disciplinary turnover in their top executive by the end of the third year following the year of poor performance. More importantly, we document a significant decline in the frequency of control-reducing disciplinary events from the active to the less active takeover period. During the active takeover period, 57% of the sample firms are either the target of corporate control activity, are targeted by shareholder activists, or experience nonroutine turnover of the firm's top executive, while only 44% of the firms in the inactive period experience one or more of these events. This difference is statistically significant at the 0.01 level. This reduction in disciplinary events corresponds with a significant reduction in the rate of disciplinary managerial turnover, from 42% in the active takeover period to 31% in the inactive period. These effects are driven by a substantial decline in takeover activity. While 42% of the sample firms are targets of takeover activity during the active takeover period, only 17% are takeover targets in the less active period. It is notable that the decline in takeover activity is not offset by an increase in public shareholder activism in the less active takeover period. The fraction of firms experiencing shareholder targeting activities, such as proxy fights for board seats, shareholder resolutions, and other non-proxy targeting events, increases only from 8% in the active takeover period to 12% in the less active period. This difference is statistically insignificant. Consequently, there is a significant net reduction in the incidence of external control market events from the first to the second subperiod. We thus conclude that, among our sample firms, the significant decline in takeover activity in the early 1990s is associated with a significant decline in disciplinary events that reduce the control of current managers. Because several previous studies suggest that market disciplinary events are an important determinant of corporate restructuring activity,1 we examine whether the overall decline in disciplinary events from the active to the less active takeover period is associated with a corresponding change in the nature of restructuring activity and other operating changes following poor managerial performance. We find that a large fraction of the sample firms undertake major restructurings following the performance decline. Approximately, two-thirds of the firms either restructure their assets, layoff employees, or initiate major cost-cutting efforts. On average, these restructurings are met with a positive stock price reaction, and are more common among firms experiencing disciplinary events. Nevertheless, there is no significant difference in the frequency of these restructurings across the two subperiods. Moreover, the magnitude of restructuring is similar in the active and less active takeover periods. Among firms that sell assets, the asset sales average 28.2% of the book value of total assets in the first subperiod, and 22.4% in the second subperiod. We also find that the sample firms exhibit significant improvements in operating performance in the three years following the year of performance decline. These operating improvements are economically large, and do not differ significantly between the two subperiods. Moreover, operating improvements are significantly greater among those firms that initiate asset restructurings immediately following the performance decline than in those that do not. We conclude, therefore, that the decline in takeover activity does not result in fewer performance-enhancing restructurings in the less active takeover period. There have been many previous studies of managerial discipline and corporate restructuring. The three studies most closely related to ours are Morck et al. (1989),Mikkelson and Partch (1997), and Huson et al. (1997). Morck et al. (1989) examine the sensitivity of takeovers and management turnover to alternative measures of firm performance. However, their sample is limited to a cross-section of Fortune 500 firms in 1980. Because they use a relatively small set of poorly performing firms, Morck et al. are unable to examine time-series variation in disciplinary mechanisms. Further, their study omits the examination of corporate restructuring activity. Mikkelson and Partch (1997) and Huson et al. (1997) examine changes in the sensitivity of management turnover, that is not related to takeover activity, to firm performance, comparing an active takeover period to a less active takeover period. Our study differs in two important respects. First, we include a broader set of control-reducing disciplinary events, thereby allowing us to examine whether other control-reducing disciplinary events substitute for a decline in takeovers. Second, we examine corporate restructuring and operating performance following the initial performance decline. This design allows us to draw inferences regarding whether changes in the frequency of explicit disciplinary events have a net effect on the manner in which firms respond to poor performance. The remainder of the paper is organized as follows. In Section 2, we review related studies of takeovers, shareholder activism, and management turnover. We also discuss the possible effects of a decline in takeover activity on managerial discipline and corporate restructuring. Section 3 describes the sample selection process and reports descriptive statistics. Section 4 reports the incidence of managerial disciplinary events for the full sample and the two subperiods. Section 5 reports the extent of corporate restructuring and operating improvements following the year of poor performance. Section 6 provides a discussion of our results and Section 7 concludes.

We examine the incidence of those disciplinary events that reduce current managers’ control, and the extent of corporate restructuring among firms experiencing a substantial decline in industry-adjusted operating performance. We find that approximately one-half of the sample firms are the target of some control-reducing disciplinary event in the year of and the three years following the year of poor performance. These disciplinary events include takeover attempts, shareholder activism, and board dismissals. The high frequency of these events suggests that the threat of a control reduction provides meaningful incentives to top executives. In addition, there is a significant decline in the incidence of control-reducing disciplinary events from the active takeover period (1985–1988) to the less active takeover period (1989–1992). This decline suggests that, during the less active takeover period, other monitoring mechanisms do not fully substitute for takeovers in forcing the dismissal of top executives of poorly performing firms. Despite the decline in control-reducing disciplinary events, however, we find evidence of significant increases in corporate restructuring following performance declines in both subperiods. Asset restructuring announcements are more likely in firms experiencing disciplinary events, are met with positive stock price reactions, and are associated with subsequent improvements in operating performance. We thus conclude that the decline in disciplinary events from the active to the less active takeover period does not lead to fewer value-enhancing corporate restructurings. Further studies that provide direct evidence on the process through which boards of directors, active shareholders, and managers interact to produce such changes would represent an important contribution to the corporate governance literature.