Discussion of Performance Shocks, Turnaround Strategies and Corporate Recovery - Alfred Yawson By Vidhan K. Goyal Hong Kong University of Science & Technology

What is the paper about? Examines how firms respond to performance declines. Changes in financial strategies –Leverage, dividend policies, operating expenses, revenue growth, working capital Restructuring –Divestitures (asset sales), employee layoffs, new CEO appointments Impact of these turnaround strategies on subsequent performance

Comments - Sample Understanding the sample firms –Paper’s methodology: Firms are included if their industry adjusted operating performance goes from positive in one year to negative in the next year. –The sample probably includes firms that are profitable but underperformed the industry in a particular year. –Is restructuring an optimal response for these firms? –Are these transitory declines in performance?

Comments - Sample Provide a better understanding of what caused the performance decline. –Absolute performance measures –Stock returns and Market/Book ratios –Case-studies or a brief descriptive table indicating what caused these firms to suddenly under-perform their industry.

Comments – Financial Strategies Would earnings management be a concern? –Median differences in Table 5 shows that Revenue growth increases while operating expenses go down. Consistent with improvement in EBITDA. However, working capital increases. –Could also explain why financial strategies have short term impact. Examine sub-samples of firms that do not divest.

Comments – Corporate Restructuring Activities and Firm Performance Some questions: –Regressions include both asset sale and divestiture. How does one distinguish between asset sale and divestiture? –It is not clear why asset sales result in a decline in performance. –Would year 0 EBITDA reflect the performance of the combined firm while year 1 EBITDA reflect performance of the remaining firm (following the asset sale)?

Comments – Interaction Effects Motivation for Table 10 interaction effects. –For example, a one percent revenue growth should have the same impact on performance regardless of whether the firm has a new CEO or an old CEO.