Abstract

An historical review of managers' corporate renewal decisions reveals an evolving pattern away from using operating turnarounds in favor of making changes in corporate scope via transactions. One explanation for this progression away from operations is that financial valuation considerations supplant other inputs to managers' strategic logics — a reflection of the rising influence of financial institutions as activist owners. Initially, financial owners embraced the earlier emphasis upon fixing underperforming resources to accomplish corporate renewal, but they soon agitated for divestitures. This evolution was supported by the rising importance of private equity firms as suitors to acquire distressed assets. As underperforming resources passed from firm to firm, until finding an owner willing to confront their operating challenges, specialized financial owners assumed greater importance in corporate renewal activities. The result was strategic owners performed fewer operational turnarounds to renew troubled corporations and divestedthem to specialists who could do them instead.