Corporate Restructuring of RBS - Essay Example

Many organizations these days are practicing corporate restructuring to make the optimal use of their resource. Some organizations have found that corporate restructuring is necessary for enhancing the business profitability, while other businesses have not been very successful in restructuring. This has resulted in debates over whether the corporate restructuring is really beneficial or whether it is only a myth. This paper is going to look at the both sides of corporate restructuring and will conclude with the final word on the impact of Corporate Restructuring on the financial position of an organization.

The major objective behind any restructuring program is to achieve the organizational efficiency. Corporate Restructuring schemes are designed keeping in mind the enhancement in productivity of the workers, cost control elements and any other objectives that are going to maximize the shareholder’s wealth. Conventionally it was thought that corporate restructuring improves the performance of a company’s shares on the stock market. This hypothesis was rejected by a recent study. It was revealed that announcements relating to Corporate Restructuring of an organization did not yield abnormal returns for the stockholders.

Hence, Corporate Restructuring does not change market sentiments about the organization immediately. The change in financial performance only occurs if it is found that the corporate restructuring has enhanced the organization’s use of resources and there has been an increase in the profitability of the firm. (Bowman & Singh, 1993) Another study done on the group of hospitals revealed that Corporate Restructuring is not positively correlated with increase in financial position and performance of an organization.

Other factors such as size of the organization, number of employees and target market are more likely to be the main difference between financially strong and a financially weak organization. The results of this study may lack reliability because it was cross-sectional research containing data of only one year. In the long-run Corporate Restructuring forces might be more efficient and have an impact on profitability of the organization. But to be on the safe side we can say that Corporate Restructuring is not correlated with the profitability of the organization in the short-run at least.

(Clement, A'unno, & Poyzer, 1993) The paper is going to examine the impact of Corporate Restructuring on the market of an organization. The results of the studies indicated that the smaller and more centrally concentrated organizations are better in strategic decision making. In the period of 1990s, many organizations with diffused investment subsidiaries and stakes lacked any attention from the investors and hence there was a lot of focus on downsizing strategies during that period. The study also focused that blockholder investment is necessary for the stability of organization and firms with blockholder investment are efficiently configured.

Hence, it is better for the organizations to downsize and try to maintain blockholder organizational structure in order to safeguard against uncertainty. Many organizations are downsizing because over-diversification is doing more harm than good and investors have realized that the correct way of making money is by investing large sums in a single organization to achieve growth. (Bethel & Liebieskind, 1993) A