One of the most prominent aspects of corporate behavior during the 1980s was corporate restructuring--changes of business portfolios through a high level of acquisitions and divestitures. However, little attention has focused on the consequences of restructuring activities. This paper investigated the impact of corporate restructuring activities on a firm's financial performance and long-term competitiveness during 1980s. In comparing a sample of nonrestructured firms, this study found that there are no significant performance differences between restructured and nonrestructured firms and the impacts of corporate restructuring vary depending on restructuring scope. Additionally, there exists a partial substitution relationship between restructuring scope and R&D intensity.
The corporate restructuring phenomenon marked a drastic difference from the predominantly acquisitive period in the 1960s & 1970s (Singh 1993). On the one hand, a growing number of companies that once thought diversification and expansion were vital, are abruptly changing course. Many conglomerates have restructured their diversified businesses through divestitures and acquisitions. They are slimming down and narrowing their focus, lopping off divisions, and selling assets and product lines. They are not only jettisoning bad acquisitions of the early 1970s, but also making moves to spin off and scale down healthy businesses to concentrate on what they do best. Overall they reduce their degree of diversification. For example, Porter (1987) reported that half of the unrelated acquisitions made by conglomerates during the 1960s and 1970s have been reversed through divestitures. Similarly, Ravenscraft and Scherer (1987) estimated one-third of all (including related) acquisitions made in the 1960s and 1970s were later divested. Ollinger's (1994) research of the oil industry indicates that by 1990 many oil companies (e.g., EXXON, AMOCO, Mobil) had sold most of their unrelated businesses. Discarding all of their completely unrelated businesses such as retailing, electronics and electric motors, oil companies retained some units that were natural extensions of, or only distantly related to their existing businesses, such as mining.
On the other hand, the corporate refocusing movement does not mean that all diversified firms have terminated their diversification strategy all together. In fact, some researchers have observed that a significant number of firms are still diversifying their businesses, which defies the gospel of 1980s: focus on a few core businesses. Continuous expansion is still a popular measure of success in growth-oriented Corporate America. Many substantially diversified firms--Westinghouse, Berkshire Hathaway, Philip Morris, Hanson Trust, Teledyne, 3M etc. seem not to have followed the bandwagon of "downscoping." Statistics and empirical studies also indicate that the trend of diversifying continues, despite the business rhetoric of refocusing on firms' core businesses. For example, Davies, Diekmann and Tinsley (1994) found that 30 percent of largest firms still operated in three or more 2-digit industries in 1990 and shown sign of reversion. Markides' (1994) empirical study of Fortune 500 companies suggested that there exists an optimal level of diversification. From a random sample of the diversified firms, some might have over-diversified (above the optimal level), while others might be below their optimal diversification levels. Assuming profit-maximizing behavior of these firms, he found that the "under-diversified" firms would increase the degree of their business diversity, while the "over-diversified" firms would decrease the degree of their business diversity. He further found that the aggregate diversification level has not changed in the 1980s, which he attributed to the above-mentioned counterbalance movements of refocusing and diversifying. In a similar vein, …