Shareholder Value and Industry Decline

We examine, from the point of view of shareholders’ value, different strategies adopted by integrated steel firms in response to severe industry decline. We calculate the annual return generated from investing in integrated steel firms during the decline, assuming that all dividends paid out by a firm as well as any residual value left if the firm exited were invested in the S&P 500, and compare those cumulative annual growth rates to growth of an investment in the S&P over the same period. We find that firms that maintained or increased their investment in steel mostly generated lower returns, although conglomerate mergers in some cases cushioned the loss to shareholders. On average, corporations able to exit from steel entirely did best, particularly if they sold out earlier or if the steel assets were not the core business of the corporation.