Determinant of Preemptive Corporate Restructuring

Joohyun Lim

doi:10.22158/rem.v5n3p101

Abstract

In this paper, I investigate whether companies with high quality accounting information carry out preemptive corporate restructuring or not. I find the higher the quality of accounting information, the more proactive the corporate restructuring for the following reasons. First, Board of Directors overseeing the management basically identifies the financial position and performance of the entity through accounting information, it will encourage the management to make preemptive restructuring decisions when it is necessary to improve its operating performance or improve its financial structure through corporate restructuring such as the sale of assets, interests, affiliates and business units. Second, high-quality accounting information will play a role in enhancing possibility of completion of corporate restructuring. This finding suggests that high quality of accounting information was required as a determinant that could enhance the practicability of preemptive restructuring.

Highlights

Corporate restructuring refers to adjusting the size of a business through the sale of assets, interests, affiliates and business units
In this paper, I investigate whether companies with high quality accounting information carry out preemptive corporate restructuring or not
This finding suggests that high quality of accounting information was required as a determinant that could enhance the practicability of preemptive restructuring

Summary

Introduction

Corporate restructuring refers to adjusting the size of a business through the sale of assets, interests, affiliates and business units. This study shows that entities with a high quality of accounting information tend to carry out more preemptive restructuring because of their effective monitoring role and easier valuation of the assets sold. Companies should cope with changes in economic conditions and technology by expanding or downsizing (Coase, 1937) For reasons such as improving the financial structure due to repayment of liabilities, securing investment funds for new investment meetings, improving operating performance and securing liquidity, the entity needs to carry out restructuring through asset sales, equity sales and corporate restructuring in advance, even before the entity can detect bad signs. The board of directors of a company with high quality accounting information could encourage management to make corporate restructuring decisions if it is deemed necessary for the entity to carry out a preemptive restructuring even before a financial failure is detected. It shows a general increase in the number of acquisitions until 2008, sharp decreases in 2009, and increases again after 2010

Measurement of Accounting Information Quality

Results

Conclusion