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Ownership structure and divestiture decisions: Evidence from Australian firms

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  • Nguyen, Pascal
  • Rahman, Nahid
  • Zhao, Ruoyun

Abstract

Divestitures create shareholder value by helping firms to optimize their portfolio of assets. However, firms may forego value enhancing divestitures because of agency problems. More specifically, large controlling shareholders may prefer to retain the assets in order to extract private benefits of control at the expense of minority shareholders. In this paper, we explore the role that other blockholders play in constraining the largest shareholder's influence. The results indicate that divestiture activity decreases with the ownership of the largest shareholder. The presence of another significant blockholder appears to curb this negative bias towards divestitures. Our findings provide an economic rationale for the higher performance of firms characterized by more balanced ownership structures. Involvement of family owners also appears to provide similar benefits.

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Bibliographic Info

Article provided by Elsevier in its journal International Review of Financial Analysis.

Volume (Year): 30 (2013)
Issue (Month): C ()
Pages: 170-181

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Handle: RePEc:eee:finana:v:30:y:2013:i:c:p:170-181

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Web page: http://www.elsevier.com/locate/inca/620166

Related research

Keywords: Divestitures; Restructuring; Propensity score matching; Ownership; Private benefits;

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References

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