Business Restructuring and Corporate Governance: Evidence from survey data

Utilizing a unique questionnaire survey, we investigate difficulties in actual exit and organizational weaknesses in dealing with exit. Less profitable companies are more likely to answer that they have difficulties in making decisions related to downsizing and exit due to a lack of criteria. The higher the foreign investor ownership ratio and the higher the leverage, the less likely that firms answer that the internal procedures for deciding divestment lack clarity. Market-to-book ratio and the presence of a labor union increase problems associated with coordination with employees and with succession of employment after a sale. Interestingly, cash holdings per lifetime employee alleviate the labor problem concerning divestment. In terms of organization, small firms, high valuable firms, and cash rich firms are less likely to have criteria for evaluating divestment. Executive ownership significantly increases the likelihood of criteria but increasing size of board of directors decreases the existence of criteria. Likewise, small firms, high valuable firms, and cash rich firms tend not to have a process for evaluating divestment. Firms with high executive ownership or high foreign investors’ ownership are more likely to have procedures in place for evaluating downsizing and exit in response to such proposals. The effect of outside directors on the criteria and process for exit decision making as well as on issues involved in actual exit is insignificant.