The Relation Between Disaggregated Restructuring Charges and Stock Returns: The Effects of Financial Distress

Carol C Dee
Florida State University

Darlene Anderson
Florida State University

Abstract: We examine the relation between restructuring charge components and stock returns for firms reporting restructuring charges in the year that the disaggregated component disclosure became mandatory. We find significant coefficients on disaggregated components of restructuring charges in a regression of returns on earnings, earnings changes, and restructuring charge components. We provide evidence that for firms that exhibit signs of financial distress, aggregate restructuring charges are priced differently than they are for financially healthy firms. Further, we show that disaggregated components of the restructuring charge are priced differently for financially distressed firms than they are for healthy firms, and that this difference is significant. Results suggest that for financially distressed firms, investors perceive supplemental disclosure as a positive signal of the firm’s future operating performance, and view a disclosure that lacks detail and/or clarity negatively.

Back to Program