| A corporate turnaround is a company which after suffering a period of low or declining economic performance is able to reverse its fortunes and become a successful enterprise. A number of previous studies have focused on the management actions taken by turnaround firms. The present study focuses on the structural characteristics of turnaround firms and their industries. Variables that attempt to capture these characteristics were used in developing models to predict turnaround. Industry characteristics considered include seller concentration, barriers to entry, industry growth, and the amount of total industry research and development expenditure. Firm characteristics considered include market share, change in market share, size, level of diversification, leverage, and capital intensity. Two other characteristics, ownership control and profit margins, appear to be relevant to this study and were also included.; A sample of firms showing poor performance for two successive years was identified, Those firms which, after a four year interval, become successful performers were classified in the turnaround group. Those firms with continued low performance were classified in the nonturnaround group. Results indicate first, that four characteristics: size, R&D, external control and an interaction variable combining operating margin and advertising were included in models developed by logistic regression and MDA. Second, these models provide some help in distinguishing between the two groups. Further, several changes in turnaround firms were observed. Turnarounds have substantially increased their revenue. Turnarounds have decreased their leverage and capital intensity, and increased their market share and margins. Also, turnaround firms continue to belong to industries that invest more heavily in R&D; however, the industry growth is negative for both the turnaround and nonturnaround groups. Both groups have experienced change in control-type i.e., some turnaround firms changed from being externally-controlled to owner-controlled and some nonturnaround firms have changed from being owner-controlled to externally-controlled. |
