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Financial performance following discontinued operations

Review of accounting & finance, 2020-12, Vol.19 (4), p.429-447 [Peer Reviewed Journal]

Emerald Publishing Limited ;Emerald Publishing Limited 2020 ;ISSN: 1475-7702 ;EISSN: 1758-7700 ;DOI: 10.1108/RAF-10-2019-0224

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  • Title:
    Financial performance following discontinued operations
  • Author: Guragai, Binod ; Hutchison, Paul D
  • Subjects: Accounting policies ; Annual reports ; Capital markets ; Cash flow ; Chief executive officers ; Financial accounting standards ; Financial reporting ; Financial statements ; Financial statements for discontinued operations ; Hypotheses ; Net present value ; Stock exchanges
  • Is Part Of: Review of accounting & finance, 2020-12, Vol.19 (4), p.429-447
  • Description: Purpose Prior literature provides empirical evidence that financial performance improves for core remaining operations after a firm discontinues some of their operations. This study aims to examine whether the association between discontinued operations and future financial performance improvement is affected by a regulatory rule (i.e. Statement of Financial Accounting Standards 144 [SFAS 144]) that significantly altered the reporting requirements of discontinued operations. This study also examines whether the association is dependent on the profitability of the operations discontinued. Design/methodology/approach Ordinary least square regressions are used to test the association between discontinued operations and financial performance improvement, conditional on the profitability of operations discontinued in the pre-SFAS 144 and SFAS 144 regulatory regimes. Data on profitability of operations discontinued is hand-collected. Findings Results suggest that firms experience improvement in financial performance following the reporting of discontinued operations in the pre-SFAS 144 era. Using hand-collected data on the profitability of operations discontinued, this research study also shows that improvement in performance is stronger for firms that discontinue loss operations compared to those that discontinue profitable operations. Originality/value This study explores the impact of regulatory change on the association between discontinued operations and future performance. Furthermore, unique hand-collected data is used to understand whether financial performance improvement is conditional on the profitability of the operations discontinued. Results documented in this paper should be of interest to investors, regulators and analysts in understanding the long-term strategic implications of discontinued operations.
  • Publisher: Patrington: Emerald Publishing Limited
  • Language: English
  • Identifier: ISSN: 1475-7702
    EISSN: 1758-7700
    DOI: 10.1108/RAF-10-2019-0224
  • Source: ProQuest Central
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