Evaluation of restructuring alternatives: A transaction cost approach

Restructuring constitutes an important area in the strategy literature. One of the contributions of this study is the development of a theoretical framework for the evaluation of two restructuring alternatives--sell-offs and layoffs. It is argued that the choice of the restructuring alternative by a firm may be constrained by the relative transaction costs, which in turn, depend largely on the relative specificity of the human and physical assets held by the firm.;An attempt was also made to demonstrate the validity of some of the secondary measures used in this study by developing a survey instrument. Several executives from 28 firms were interviewed in the process. The anecdotal evidence gathered from these executives was found to complement the hypotheses developed in this study.;The hypotheses developed in this study were tested empirically. The data were mostly drawn from the COMPUSTAT tapes and other secondary sources. The findings of this study show that: (1) the probability of sell-off is inversely related to the specificity of physical assets, (2) the probability of layoff is inversely related to the specificity of human capital, and (3) the relative probability of sell-off to layoff (and vice versa) is inversely related to the relative specificity of physical and human assets.