Stakeholder Losses in Corporate Restructuring: Evidence from Four Cases in the North American Steel Industry

Abstract

This paper presents an empirical investigation of costs associated with four major restructurings in the North American steel industry over the past decade. In contrast to many previous studies which concentrated mainly on the impact of restructuring on shareholders and bondholders, this study considers the losses suffered by all stakeholders of the four sample firms. The stakeholders examined include labor, suppliers, unsecured creditors, and government agencies in addition to the debtholders and preferred and common shareholders. The study also examines the administrative and legal costs associated with restructurings. The aim of the paper is to evaluate the wealth losses suffered by all stakeholders and to conduct a longitudinal analysis of these restructurings in order to evaluate the relative magnitude of these wealth losses. The combined losses suffered by all stakeholders in the four restructurings analyzed in this paper are estimated at approximately $7 billion.