Does corporate retrenchment gain value? A study from Malaysia

Ung, Lik Jing; Puah, Chin Hong

doi:10.1504/ijmfa.2018.093489

Cited by 2 publications

(9 citation statements)

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“…We adapt the retrenchment model of Schmitt and Raish (2013) and Ung et al (2018) and explore the importance of CEO power for retrenchment strategy performance by modifying Haynes and Hillman's (2010) model. Even though in Haynes and Hillman (2010) and many retrenchment studies (i.e., Chakrabarti et al , 2011; Schmitt and Raish, 2013; Ung et al , 2018) do not have a dynamic relationship, we argue that endogeneity issue will incur in our estimation due to simultaneity and unobserved errors. Therefore, we follow Wintoki et al (2012) approach by utilizing the GMM approach to fix this issue where the system GMM adds the one-lagged of performance.…”

Section: Methodsmentioning

confidence: 99%

“…The firm performance is measured by using Return on Assets (ROA) and Tobin's Q ( Q ). We use return on assets (ROA) ratio to capture accounting-book performance, and Tobin's Q is to capture market-based performance (Ung et al , 2018). We follow Ung et al (2018) calculation, where ROA is the ratio of EBIT to total assets, and Tobin's q is the ratio of the total market value of a particular firm to the replacement cost of its total assets.…”

Section: Methodsmentioning

confidence: 99%

“…Retrenchment strategy is a corporate action, where a firm reduces business operations with the view to cut expenditure and reach a more stable financial position (Hoskisson et al , 1994; Morrow et al , 2004; David, 2013; Ung et al , 2018). This activity includes employee turnaround, divestment, and business liquidation, generating laying-off of the employee, shutting down the unit of business, and discontinuing certain business chains (Hoskisson et al , 1994; David, 2013; Ung et al , 2018). It can entail selling off land and buildings to raise needed cash, closing obsolete factories, reducing the number of employees, and changing the top manager (David, 2013).…”

Section: Methodsmentioning

confidence: 99%

“…However, due to low monitoring and or incentives, the CEO may act opportunistically in implementing a strategic decision (Jensen and Meckling, 1976). This explains why prior studies like Lee et al (2012), Ung et al (2016, 2018) addressed agency cost as the explanation of strategy implementation failure. Those studies argue that strategy implementation has failed to induce better performance due to the self-interest of the CEO.…”

Section: Theoretical Argument and Hypothesis Developmentmentioning

confidence: 99%

“…To our knowledge, little is known about retrenchment effects on firms from the developing world, notwithstanding a few recent undertaken studies (e.g. Ung et al , 2016; Ung et al , 2018).…”

Section: Theoretical Argument and Hypothesis Developmentmentioning

confidence: 99%

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Does CEO power matter for the performance of retrenchment strategy?

You

Kontesa

2020

JSMA

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PurposeThis research aims to examine the moderating role of CEO power on the relationship between retrenchment strategy and firm performance by framing the relationship under an agency theory, and power circulation theory.Design/methodology/approachThis study focuses on a sample of 319 non-financial public listed companies in Malaysia from the year 2011–2016 and estimates the model under two-step GMM panel regression to eliminate the endogeneity issue.FindingsThe results show that the retrenchment strategy increased firm performance. Meanwhile, greater CEO power changes that retrenchment effect into increased performance. This study also indicates the CEO power strengthens the relationship between firm performance and retrenchment. However, CEO power does not have any effect on the performance of low retrenchment, and the performance of big firm size.Research limitations/implicationsThe findings show that the higher CEO power cause higher firm performance and higher retrenchment. This research suggests that CEO power can make retrenchment strategy works and the decision made can affect the firm performance significantly.Originality/valueThis study examines the effect of CEO power on the performance of retrenchment strategy implementation by contesting agency theory, power circulation theory, and resource-based view theory within the emerging country context.

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Section: Methodsmentioning

confidence: 99%

Section: Methodsmentioning

confidence: 99%

Section: Methodsmentioning

confidence: 99%

Section: Theoretical Argument and Hypothesis Developmentmentioning

confidence: 99%

“…To our knowledge, little is known about retrenchment effects on firms from the developing world, notwithstanding a few recent undertaken studies (e.g. Ung et al , 2016; Ung et al , 2018).…”

Section: Theoretical Argument and Hypothesis Developmentmentioning

confidence: 99%

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Does CEO power matter for the performance of retrenchment strategy?

You

Kontesa

2020

JSMA

Self Cite

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Strategic turnaround: unraveling the impact of CEO power on firm performance during retrenchment

Ijaz,

Sadiq,

Abbas

2024

IJLMA

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Purpose This paper aims to investigate the impact of retrenchment strategy on firm performance in the context of Pakistani firms while considering the moderating role of chief executive officer (CEO) power. By examining the influence of CEO duality and CEO share ownership on the relationship, this study contributes to strategic management and corporate governance knowledge within the Pakistani business environment. Design/methodology/approach A quantitative approach was used to analyze the relationship using data from annual financial statements. The sample consisted of 76 companies from the KSE-100 index from the year 2015 to 2020. Random effects regression models were used, along with hierarchical regression to explore the moderating effect of CEO power. Findings The findings demonstrate that the implementation of a retrenchment strategy positively impacts firm performance in Pakistani firms. The study also reveals that CEO power plays a crucial role in strengthening the relationship between retrenchment strategy and firm performance. Moreover, the study highlights the importance of considering the temporal sequence, size and age of firms when examining the impact of CEO power and retrenchment strategy on firm performance. Research limitations/implications The study enhances the understanding of the contingent nature of retrenchment strategies and the influence of CEO power in the Pakistani business context. Practically, the research contributes to strategic management and corporate governance dynamics, facilitating the development of strategies that enhance firm performance and sustainability in Pakistan. Originality/value This research provides original insights by specifically focusing on the Pakistani context and analyzing the interplay between retrenchment strategy, CEO power and firm performance. The study adds to the limited literature on the relationship between retrenchment and performance in the Pakistani business environment. Additionally, it highlights the significance of CEO power as a critical factor in determining the success of retrenchment.

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Does corporate retrenchment gain value? A study from Malaysia

Abstract: Retrenchment strategy has gained its popularity and is being regarded as a common strategy in

Cited by 2 publications

References 0 publications

Does CEO power matter for the performance of retrenchment strategy?

Does CEO power matter for the performance of retrenchment strategy?

Strategic turnaround: unraveling the impact of CEO power on firm performance during retrenchment

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