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| Author: | Baden-Fuller, C. W. F. |
| Title: | Exit from declining industries and the case of steel castings |
| Journal: | Economic Journal
1989 : DEC, VOL. 99:398, p. 949-961 |
| Index terms: | INDUSTRIES CRISES ORGANIZATIONAL DECLINE DIVERSIFICATION MANAGERS SHAREHOLDERS |
| Language: | eng |
| Abstract: | The conflicts between managers and owners on the one hand and creditors on the other in diversified and undiversified firms in a declining industry are explored. Arguments are provided that an undiversified firm has less incentive to close a loss-making plant than a well-capitalised diversified firm. The key point is that in an undiversified firm, if closure involves cash outflows shareholders and managers can lose everything. If closure is postponed, there is usually some chance of a "recovery". The UK steel casting industry is examined. Between 1975 and 1985 there was a dramatic decline in orders and some 27 plants closed. The analysis of data supports the original proposition that diversified firms quit first. |
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