Restructuring Charges, Anti-Takeover Threats and Anti-Takeover Provisions

• In Event: Financial Accounting and Reporting IV

Abstract

The current study investigates whether restructuring charges are related to the external market for corporate control. We find that the likelihood that the firm is a takeover target is positively related to restructuring charges. In addition, the sensitivity of restructuring charges to corporate governance mechanisms is increasing in our measure of opportunism. We also document that consecutive restructuring charges increase the probability of takeovers, consistent with the idea that corporate raiders are able to differentiate between future implications of the initial charge versus consecutive charges. We interpret our results as supporting an opportunistic hypothesis rather than a long-term value creation hypothesis. Managers act opportunistically when protected from certain corporate governance mechanisms. Finally, we find an insignificant association between takeover probability and restructuring charges in the post SFAS 146 environment. We interpret this result as indicating that the SFAS 146 required changes decreases the information content in the firms’ restructuring charges.

Authors

• Anthony Dewayne Holder, University of Toledo

• Davit Adut, Christopher Newport University

• Ashok Robin, Rochester Institute of Technology