Restructuring Program Research Articles

The Impact of China's Millennium Labor Restructuring Program on Firm Performance and Employee Earnings

Around the turn of the century, China experienced perhaps the largest labor restructuring program in the world. This paper uses a new data set of Chinese industrial enterprises to examine what leads to downsizing, and tries to understand the effects of labor downsizing on firms' technical efficiency, financial performance, and employee wages. We find that downsizing is more prevalent in SOEs, and is more likely when enterprises are older, larger, and have higher excess capacity. For both SOEs and private firms, downsizing is more likely when the prices of their products drop, but private firms respond more dramatically. Moreover, downsizing has serious short-term costs in terms of total factor productivity. For mild downsizing, private firms suffer more deterioration in productivity. The distribution of surplus after downsizing is more favorable to labor in SOEs. For severe downsizing, SOEs and private firms both exhibit lower TFP growth with similar magnitudes. Our findings imply that private firms emphasize profit goals while SOEs place a greater weight on labor protection.

Bank Recapitalization, Bank Performance and Real Sector Lending: An Analysis of Indonesia’s Economic Recovery from the Crises of 1997-1998

This study examines the impact of banks’ recapitalization on the performance of banks and the effectiveness of real sector lending in Indonesia. The study was based on the recapitalization bonds issued by the Indonesian government as part of the program to restructure and revitalize the Indonesian-banking sector following the economic crisis that occurred in 1997-1998. The genesis of the crisis that knocked Indonesia over was triggered by the contagion-effect. It started with the downfall of the Thai Bath on 2 July 1997. The crisis in Indonesia could be placed in the third-generation model of crisis which focuses on how the banking sector might cause a currency crisis. To stabilize the economy and recover the society’s confidence, the government took action to stabilize the banking system. The banking recapitalization and restructuring program was formalized under the Indonesian Banking Restructuring Agency. The bank recapitalization was by the injection of government bonds totaling up to IDR430.4 trillion to 36 banks. This was considered as “too big or too important to fail.” This study’s findings (from the empirical analysis of the performance of all recapitalized banks after the capital injection in 1999 and 2000) showed that generally, the performance of banks has significantly improved. Starting from one year, through to five years post-recapitalization, the analysis indicated that the recapitalization had no impact in lowering the provision of non-performing loans, costs-income ratio, and growth of the loan to deposits ratio. This condition made the performance of banks seem to be better, but, from the macro-economic point of view, the ‘good performance’ was an illusion. It caused the recapitalized banks to have as their dominant assets the recapitalization bonds and Bank Indonesia’s Certificates. The effectiveness of banks’ recapitalization to real sector lending was proven to be diverse among the different groups of banks. The behavior of banks concerning changes in economic fundamentals remained static, even with capital injection, except for the growth of loans in the regional banks. Based on the individual sectors, four sectors showed stagnant or negative growth. On the whole, the fiscal cost of the recapitalization program could not directly help in accelerating the economic recovery from the crisis, contrary to the Claessens, Klingebiel, and Laeven (2001) research findings that a package of specific resolution measures can help accelerate the recovery from such crisis with significant fiscal costs. The implications from both internal and external banking were found to be many and varied. Of course, as long as the recapitalization bonds gave higher gains than those from the other portfolio of the banks, the banks preferred to hold and maintain the bonds as a source of interest income that has no risks and which hides behind the argument of maintaining their capital adequacy ratio (CAR). Again, the bank's disinter-mediation reduced the effectiveness of monetary policies during the crisis and in the post-crisis period in Indonesia. We wish to recommend that the periphery of the real sector be expanded to make the banks the engines of growth. We strongly recommend that the central bank should institute sanctions against banks, which keep large amounts of un-disbursement loans. Such banks should be encouraged in the first place to link these funds to the investment prospects in the economy to increase the role of the recapitalized banks in the economic recovery process. To encourage and accelerate the development of the various sectors such as agriculture sector, mining sector, electricity, water & gas sector, and trade, hotel & restaurant sector. We recommend that the government and the central bank should periodically announce the regulations and lending targets for the different sectors.

Restructuring and Economic Performance: The Experience of the Tunisian Economy

This paper aims at identifying the sources of comparative advantage and the bottlenecks of the Tunisian economy. By using an activity analysis model and yearly data on the input-output structure and the factor endowments, the paper determines the evolution of the potential of the Tunisian economy between 1983 and 1996 and some of its key aspects that the industrial restructuring program of 1996 could improve or reinforce. The analysis sheds light on the scarcity of various types of labor, in particular of qualified labor.

Organizational cynicism: Extending the exit, voice, loyalty, and neglect model of employees' responses to adverse conditions in the workplace

We propose to extend the Exit, Voice, Loyalty, and Neglect (EVLN) model of employees' responses to adverse organizational circumstances with the construct of Organizational Cynicism. Structural equation modeling was used to fit the data provided by 159 office employees of a large Dutch trade union, who were involved in a restructuring program at the time of the research, to the postulated five-factor model. Results indicated that the model showed an acceptable fit, providing suppor t for including organizational cynicism as a distinct response in the model. Multiple regression analysis was used for the differential prediction of the five responses, using two situational variables (role conflict and autonomy), two personality variables (asser tiveness and rigidity), and selected interactions. The best predictions are obtained for exit, cynicism and loyalty. Loyalty is predicted by low role conflict and high autonomy, whereas cynicism and exit are about equally predicted by high role conflict, low autonomy, and low assertiveness.

STABILITAS SISTEM PERBANKAN DAN KEBIJAKAN MONETER : KETERKAITAN DAN PERKEMBANGANNYA DI INDONESIA

This paper reviews the inter-linkage between banking stability and monetary policy, with a reference to the Indonesian case since the 1997 crisis. In particular, it shows how monetary transmission mechanism would be inhibited and thus monetary policy would not be effective when the banking system is not sound and stable, such as during a crisis period. Conversely, the stance and response of monetary policy would have significant impacts on banking stability as inflation, exchange rate, and interest rate constitute major market risks to banking operations. For Indonesia, a close inter-linkage between banking instability and monetary policy ineffectiveness has been vividly evidenced during the crisis period of 1997 – 1999. Subsequently, however, with progress of the banking restructuring programs that Indonesia authorities have undertaken, the banking conditions have imporved considerably since 2000. As banking intermediation improved, not only has financing to economic growth increased but also monetary transmission mechanisms strengthened considerably. Nonetheless, excess liquidity that banking system is still experiencing, especially because of lack of feasible investment outlests in the real sector and high perceived credit risks from the bankers, poses serious challenges to the central bank for better coordination and striking the optimal balance between maintaining monetary and banking stability while continue to promoting economic growth.Keyword: banking stability, monetary policy, IndonesiaJEL : G21, E52, N25

Assessing the Performance of Three Weak Public Sector Banks Using Composite Rating Methoda

Till early 1990s the banking sector in India was dominated by public sector banks and with liberalization hitting Indian shores, suddenly the public sector banks found it hard to cope with the dynamic changes in industry, specially with the entry of several new private sector banks. Some public sector banks even turned negative while some maintained their dominance. In order to study the performance of the public sector banks in the post-reforms scenario, for the first time in 1999, the Government of India appointed a working group under M.S. Verma. The committee identified three public sector banks with weak health. These include: UCO bank. Indian Bank. and United Bank of India. It is exactly five years now since the report was submitted. Though these banks now turned profitable, no attempt has been made to study the financial health of these banks and how the transformation took place. The present paper is a study of these three public sector banks and their performance in the last five years (post-restructuring period). The financial soundness of these banks is measured by using composite rating method. The paper also emphasizes on the strategies adopted by each of these three banks during the last five years as a part of their internal restructuring programme.

Institutional uncertainty and the maturity of international loans

This paper shows that non-economic uncertainty in foreign countries contributes to a bias toward short-term maturity in international lending. Frequent government changes and weak institutions explain why some countries find it difficult to obtain long-term financing. Debt maturity is also explained by the level of economic and financial development of a country, the composition of loan portfolios in terms of the type of borrowers, and debt restructuring programs, among other variables. The results are obtained using data on international lending by three groups of U.S. banks: large, medium-sized, and small. Small banks shorten the maturity of their international loans in response to uncertainty to a greater extent compared to large banks.

About the evaluation of computerised health care services: Some critical points

This article analyses the concept of productivity underpinning the implementation of an information-technology-driven virage ambulatoire, or shift to outpatient care, as a solution to the productivity ‘crisis’ in Quebec’s health care system. This ‘crisis’ was diagnosed in the 1970s and based on expenditure trends. These trends were regarded by the State as an ‘obstacle’ to balanced budgets and more generally, economic growth. Into this situation stepped the IT-driven virage ambulatoire with a structural reorganisation following a productivist logic. Unrolled in the 1980s, this connected health care to the economistic discourses of the 1960s which were developed to boost productivity in a service- or information-based economy. The State thus came to draw on analytic categories, developed for a very particular mode of economic analysis, to produce a hospital restructuring program oriented around IT-based ambulatory care. The result was the reduction of health care’s principles of clinical and therapeutic efficiency to the administrative imperatives of time, quantum, cost, and optimisation, all of which became variables to be controlled, and the placement of economic logics ahead of clinical imperatives. Quebec has thus moved to a neoliberal productivist system in which clinical and therapeutic effectiveness are subordinate to economic need.

Restructuring a higher education institution

PurposeThe competitive environment facing all organizations has forced many of them to choose strategies that enhance organizational effectiveness and efficiency. Re‐engineering is one of the tools used in administering productivity improvements, cost control and asset management.Design/methodology/approachThis paper examines the re‐engineering process of a higher education institution (HEI) in Malaysia. The impact of cost reduction strategies linked to the overall performance of the organization is discussed in comparison to management system prior to restructuring; vision, mission and strategic direction; core business processes; financial performance analysis; corporate and organizational structure; reorganization of learning centers; courses offered; human resource policies and customers feedback.FindingsThe study found that generally the HEI focused on the cost‐cutting strategy especially on cost of sales and operational expenses. Consequently, there were increases in the utilization of the learning; occupancy of the learning centers; number of home courses offered increased and a decrease in employment of part‐time teaching staff. There were also marked improvements in academic networks and partnerships that provide for knowledge exchange and transfer.Originality/valueAlthough a number of studies have been carried out in Malaysia, very few have concentrated on restructuring process of higher educational institutions. This study critically examines the restructuring process and the major gains of a higher educational institution that embarked on a restructuring program to fully meet its objectives of high quality education and training.

The long-term outlook for economic reform in China: resource constraints, inequalities and sustainability

In China, the inequalities generated by the reforms in the last two decades have been increasing. As a result, the unequal regional and sectoral impact of development associated with the growth-maximisation strategy, has given rise to increasingly severe social and economic tensions and contradictions. The threats to political stability posed by these developments remain, for the time being, potential more than real. But the damage which they have caused to the social, economic and environmental fabric of China is already evident. The main critical facts are: 1) the rise in urban unemployment, both de facto and concealed, that has accompanied the halting restructuring programme among state-owned enterprises (SOEs); 2) the massive reservoir of underemployment that affects at least 130 million farmers; 3) the absence of even basic social security provision for the sick, the unemployed and the old; and the highly differentiated access to education; 4) the pervasiveness of corruption and its destructive impact on the normative framework that usually regulates human economic and social behaviour, to the detriment of the social contract between state and individual.

Japan's Leadership Shifts: From the East Asian Crisis to the Establishment of an ASEAN + 3 Summit

The East Asian crisis was a catalyst for changing Japan's regional position and leadership role and therefore had significant implications for Japan's geo-political and economic relationship with East Asia. The Japanese government maintained the ‘developmental state’ approach in collaborating with the economic restructuring programmes in major East Asian countries after the crisis. Japanese responses to the crisis had significant implications for East Asian regional integration. They clearly indicated the shift in Japan's behaviour and the emergence of a regional leadership role in promoting regional integration in East Asia. This suggests that Japanese confidence in the validity of the developmental state concept prompted the government to reconsider its pro-active role in the establishment of an ASEAN +3 Summit.

A Legal Framework for Systemic Bank Restructuring

The purpose of this paper is to set out the legal framework used in systemic bank restructuring with reference to recent examples in developing and industrial countries. As background, the paper first describes government strategies in the early stages of a debt crisis, which, depending on their success, may reduce the need for more comprehensive bank restructuring or be incorporated in a program of systemic bank restructuring.

An analytical approach for making management decisions concerning corporate restructuring

Internal corporate restructuring activities, such as downsizing, sale or termination of a business line, facility closure, consolidation, or relocation, often occur as part of managerial strategies intended to improve efficiency, control costs, and adapt to an ever-changing business environment. Such actions frequently result in fundamental changes in a business's organization, its strategies, its systems, and its operations. They can unsettle a business and often significantly affect current and future earnings and cash flows. In this paper we propose a novel decision-making model through the use of the dynamic programming technique to illustrate how management can determine the optimal timing and appropriate restructuring actions that maximize the benefits of a restructuring program. Copyright © 2006 John Wiley & Sons, Ltd.

Liberalization and growth in Asia: 21st century challenges

This book reveals significant lessons on how economic prosperity was secured for people over three decades in eight Asian countries. It focusses on the careful way in which these nations designed and implemented pro-growth, liberal economic and financial policies. A new phenomenon - namely financial fragility - in the more liberalised fast growth Asian economies is also examined. The authors explore why only some of the early reformers among China, India, Indonesia, Korea, Malaysia, Pakistan, Singapore, and Thailand succumbed to a serious financial crisis in 1997 whilst others did not. They also analyse the impact of policies implemented by the crisis-hit economies, either under the IMF restructuring programs or independent pursuit of capital and currency controls. The book goes on to identify the weaknesses of the banking sector in order to explain the reasons behind the financial crisis. The book concludes with lessons for other emerging economies undertaking economic and financial development through liberalization. These examples reveal policies that could be prescribed in order to prevent future problems. Focusing on post-crisis reforms and their policy impacts, and on post-crisis evaluation of restructuring implemented in the financial sector, this book will appeal to academics and those with specific interests in Asian studies and/or banking and finance. Policymakers - in particular those at central banks and treasuries, along with professionals in financial institutions and multinational firms, will find the book to be a fascinating read.

THE TECHNICAL INEFFICIENCY EFFECTS OF TURKISH BANKS AFTER FINANCIAL LIBERALIZATION

The banking sector in Turkey has grown significantly over the last two decades of financial liberalization. One of the aims of the financial liberalization was to improve efficiency through restructuring programs including the privatization of state banks and the encouragement of mergers. In this paper we identify key factors determining the technical efficiency differentials among Turkish commercial banks in the pre- and post-liberalization periods, using the technical inefficiency effects model. We found that loan quality, size, ownership of the banks, and profitability have a positive and significant impact on the technical efficiencies of banks. The results warrant implementation of effective regulatory measures to improve the quality of the earning assets of commercial banks. Furthermore, steps by the government to encourage acquisitions or mergers for private banks and the privatization of state-owned banks seem to be consistent in improving the overall efficiency of commercial banking in Turkey.

Better by design: Korea's neoliberal economy

This paper examines the processes of bank and corporate restructuring in South Korea since the 1997–98 economic crisis, and seeks to highlight how the state has intervened in a highly dirigiste manner in order to expedite restructuring in both the commercial bank and corporate sectors. At the same time it demonstrates the clear neoliberal principles that have underpinned the state's attempts to promote restructuring. The state has shown a clear determination to take action against insolvent firms and financial institutions no matter how large or strategically important they may be, to impose hard budget constraints on key economic actors. Furthermore, the state has actively sought to engineer the sale of key domestic firms and banks to foreign investors. We argue that Korea's efforts to create a functioning neoliberal economy have been largely successful and are functional from the perspective of Korean capitalism, if not the perspective of individual Korean firms. Changes in the global economy in the two decades preceding the 1997–98 crisis imposed an increasingly inescapable pressure on the Korean state to effect a neoliberal transformation and Korea's future as a centre of capitalist accumulation has for some time been bound up with the success of the neoliberal project. In conclusion, this paper seeks to draw out the broader implications of this reading of the post-crisis restructuring programme for debates on global economic liberalization and the future of capitalist diversity.

A Paradigm Shift in the Evaluation of Information Technology in Health Care

This paper examines the notion of productivity, which underlies the reorganization of Quebec's health care system around an information technology-driven virage ambulatoire, or shift to ambulatory (outpatient) care. The reorganization may be traced to a policy decision to address the health care's productivity crisis, a crisis diagnosed in the 1970s based on macroeconomic expenditure trend lines highlighting the "obstacle" to economic growth and to balanced budgets. The information technology-driven virage ambulatoire is aimed at a structural reorganization, based on the principle of: boosting productivity in a service- or information-based economy. The State, thus, relied on analytic categories developed for a particular mode of economic analysis to lead a hospital restructuring program oriented around information technology-based ambulatory care. The result was a refocus from clinical and therapeutic efficiency to administrative imperatives of time, cost, and optimization. Hence, Québec moved to neoliberal productivist system in which clinical and therapeutic effectiveness are subordinated to economic imperatives.

Downsizing, Firm Performance, and Income Distribution: Evaluating the Labor Restructuring Program in Chinese Firms

This paper uses a new data set of Chinese state-owned enterprises (SOEs) and private firms to evaluate the effects of labor downsizing on firms' technical efficiency, financial performance, and employee wages. Since downsizers and non-downsizers differ greatly in firm characteristics, we use propensity score matching to deal with firm heterogeneity. We find that downsizing has serious short-term costs in terms of allocation efficiency and financial performance. For mild downsizing, SOEs suffer more in profitability, and private firms more in allocative efficiency. The distribution of surplus after downsizing is more favorable to owners in private firms, and labor in SOEs. For severe downsizing, SOEs and private firms exhibit lower TFP growth with similar magnitudes. Thus, the public sector downsizing has failed to achieve its objective of reversing the trends of declining productivity and profitability of state enterprises in the short run. Our findings imply that SOEs face slightly more severe labor constraints than private firms, and that private firms emphasize profit goals while SOEs place a greater weight on labor protection. Finally, controlling for differences in firm characteristics through matching makes important differences in the estimates of downsizing effects.

Investigating the Simultaneity of Corporate Hedging and Debt Policies: Empirical Evidence from Indonesia

The primary objective of this paper is to investigate the simultaneity of corporate hedging and debt policies. Using a pooled sample of Indonesian non-financial listed firms covering the periods of 1996-2001, the present study finds evidence that corporate hedging and debt policies are simultaneously determined. That is, the use of debts motivate firms to hedge; but simultaneously, hedging increases debt capacity and induces firms to borrow more in order to take advantage of the tax benefits arising from additional debt capacity. Another important finding is that financially distressed firms –as indicated by their debt restructuring programs– are less motivated to hedge, because such firms will see that the option values of their equity will increase as their cash-flow volatilities increase. Therefore, financially distressed firms tend not to hedge; or at least, hedge lesser compared to those of firms that do not experience financial distress.

Financial liberalisation, crisis, and restructuring: A comparative study of bank performance and bank governance in South East Asia

This paper examines the impact of changes in bank governance on bank performance for a sample of commercial banks operating in SE Asia between 1990 and 2003. We identify bank governance in terms of bank ownership and measure bank performance as rank order alternative profit efficiency, technical change, and productivity. The period was characterised by financial deregulation, the Asian crisis and bank restructuring programmes. To resolve financial distress, SE Asian authorities implemented inter alia bank privatisation programmes and widened access for foreign ownership. Our results tend to support bank privatisation and the repeal of state ownership on economic grounds. We suggest the potential benefits of foreign ownership may take longer to be realised. For domestic private-owned banks, the challenge is improving bank efficiency.