Symbolic vs substantial corporate restructurings

Abstract

When organizations restructure their business portfolio, capital structure, and organizational structure to respond to external pressure, the restructurings may be genuine in that they are aimed at improving efficiency, or be merely symbolic in that they are aimed at satisfying institutional pressure and do not change the firm¿s internal routines. Despite of the popularity of the symbolic restructurings in both developed and developing economies, relatively less attention has been directed to how the institutional environment shapes firms¿ symbolic restructuring choice and its implications on post-restructuring performance. To address such important issues, this dissertation investigates when and how institution environment shapes the decision and performance of firms¿ substantial and symbolic restructurings. The empirical analysis of this dissertation is based on the listed firms that report negative net profit in Chinese securities market from 1998 to 2004. After giving measurement for the substantial restructuring and symbolic restructuring, as well as providing the institutional background in China in chapter II, I further conduct two empirical studies in the context of China with institutional variations across 31 provinces in chapter III and chapter IV. In chapter III, I draw on transaction cost theory and institutional theory to understand the underlying channels by which the institutions (including local legal system and local government support) across provinces in China shape firms¿ choice between substantial vs. symbolic restructuring. The results suggest that the choice is actually a combination of legitimacy and efficiency concerns. In chapter IV, I examine the performance implication of substantial restructuring and symbolic restructuring in emerging economies, as well as how the local government support moderates the performance after substantial and symbolic restructurings. Drawing on transaction cost theory, institutional theory and soft-budget theory, the study unravels the mechanisms through which local government participation leads to the success or failure of corporate restructuring. The findings have implications for research on the corporate restructuring, symbolic action, and the role of government in transition economies.