Academic journal article Academy of Entrepreneurship Journal

A New Form of Corporate Entrepreneurship: Restructuring

Academic journal article Academy of Entrepreneurship Journal

A New Form of Corporate Entrepreneurship: Restructuring

Article excerpt

ABSTRACT

A previous research asserts that ownership change creates an ideal environment where entrepreneurial activities can be re-introduced to an already established firm, and documents the evidence that the Kosdaq market reacts positively to the announcement of ownership changes. In this article, we investigate whether this positive market reaction around the announcement date is substantiated by subsequent entrepreneurial activities over the next 2-year period. Empirical research does not, however, support this view. On the contrary, the results rather promote the idea of restructuring. In other words, ownership change may present unique opportunity to detect the restructuring-related corporate entrepreneurship.

Key words: corporate entrepreneurship, ownership change, restructuring

JEL: L26, G32, G34

INTRODUCTION

Kang (2013) asserts that ownership change creates an ideal environment where entrepreneurial activities can be re-introduced to an already established firm, and documents the evidence that the Kosdaq market reacts positively to the announcements of ownership change. In this article, we investigate whether this positive market reaction around the announcement date is followed and materialized by subsequent entrepreneurial activities over the next 2-year period.

This endeavor will prove us two things. First, we can verify if the positive market reaction to the announcement is well founded and a rational behavior. If the market is efficient, any activity over the next 2-year time window, which is susceptible of enhancing future cash flows, will be correctly reflected in today's price. In the article of Kang (2013), the market efficiency is taken for granted as any other mainstream financial study. If any profit-enhancing activity is detected after the announcement, we can agree that the positive market reaction is well founded. The empirical findings of this article along with the ones reported by Kang (2013) will, thus, allow us to test the market efficiency once again.

Second, we can identify the exact activities that are believed to have caused the positive market reaction to the announcement, which is after all the main theme of this article. Kang (2013) assumes that the positive market reaction to the announcement of ownership change is a precursor to future corporate entrepreneurial activities that new incoming owners will stage. He does not, however, specify which corporate entrepreneurial activities are relevant. An ideal case will be that one or multiple of the three conventional corporate entrepreneurial activities come out as the fundamental forces justifying the market reaction. Then, Kang's assertion will be upheld empirically. On the contrary, if none of them is relevant, but other factors are instead found, we will face a challenging question as to whether these factors can be viewed as an activity of corporate entrepreneurship.

Since the empirical findings of this article can have profound meanings when they are related to the findings reported by Kang (2013), we will design the empirical research the way Kang suggests. That is, we compare a sample firm that announces a change in ownership against the control firms that are in the same business condition as the sample firm and keep their incumbent owners around the announcement date.

The empirical analysis reveals that none of the variables representing conventional corporate entrepreneurship shows affirmative signs. Rather, we find strong evidences that new owners rationally choose to restructure their firms and restore financial health first. It tells us that the ownership change rather serves as a precursor to restructuring. When a creative destruction happens within an organization, less productive part of the assets is taken out for better start, which is after all a restructuring. Therefore, if it takes entrepreneurship for creative destruction to happen, the restructuring within an organization also requires entrepreneurship for it to take off. …

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