Performance shocks, turnaround strategies and corporate recovery: Evidence from Australia

Using a sample of Australian firms, we document improvements in operating performance following performance shocks. These improvements result in part from turnaround strategies adopted by management. Evidence suggests that changes made to leverage and operating expenses result in a negative contemporaneous effect on performance improvement. The adjustments made to working capital (revenue growth) result in a lagged negative (positive) impact on performance. Furthermore, whilst asset sales have a negative contemporaneous effect, layoffs, divestitures and new CEOs have a lagged positive impact on performance improvement. The interaction of financial and restructuring strategies is found to result in an incremental impact on firm performance. Overall, there is evidence to suggest that financial and corporate restructuring strategies are efficient responses to performance shocks. JEL Classification: G32; G34