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Legacy Divestitures: Motives and Implications

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  • Emilie R. Feldman

    (The Wharton School, University of Pennsylvania, Philadelphia, Pennsylvania 19104)

Abstract

This paper investigates “legacy divestitures,” the sale or spinoff of a company’s original, or “legacy,” business. The central tension considered in this work is that the historical presence of a firm’s legacy business should simultaneously make that unit very interdependent with the company’s remaining operations and make the firm’s managers highly likely to take those same interdependencies for granted. Consistent with these predictions, the post-divestiture operating performance of firms that divest their legacy businesses falls short of that of firms that retain comparable legacy units, especially when the divested unit operates in the same industry as others of the divesting firm’s businesses. Newer chief executive officers (CEOs) are more likely to undertake legacy divestitures than their longer-tenured peers, and the most recently appointed CEOs undertake the most costly legacy divestitures. In summary, this paper provides insights into how historical interdependencies create value in diversified firms, as well as the decision-making processes that managers follow in overseeing these companies.

Suggested Citation

  • Emilie R. Feldman, 2014. "Legacy Divestitures: Motives and Implications," Organization Science, INFORMS, vol. 25(3), pages 815-832, June.
    • Handle: RePEc:inm:ororsc:v:25:y:2014:i:3:p:815-832
    DOI: 10.1287/orsc.2013.0873
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    3. Emilie R. Feldman & Claudine Gartenberg & Julie Wulf, 2018. "Pay inequality and corporate divestitures," Strategic Management Journal, Wiley Blackwell, vol. 39(11), pages 2829-2858, November.
    4. Arkadiy V. Sakhartov, 2018. "Stock market undervaluation of resource redeployability," Strategic Management Journal, Wiley Blackwell, vol. 39(4), pages 1059-1082, April.
    5. Alex Edmans & William Mann, 2019. "Financing Through Asset Sales," Management Science, INFORMS, vol. 65(7), pages 3043-3060, July.
    6. Elena Vidal & Will Mitchell, 2015. "Adding by Subtracting: The Relationship Between Performance Feedback and Resource Reconfiguration Through Divestitures," Organization Science, INFORMS, vol. 26(4), pages 1101-1118, August.
    7. Mo Chen & Aseem Kaul & Brian Wu, 2019. "Adaptation across multiple landscapes: Relatedness, complexity, and the long run effects of coordination in diversified firms," Strategic Management Journal, Wiley Blackwell, vol. 40(11), pages 1791-1821, November.
    8. Arora, Punit & Gaur, Ajai, 2022. "Peer directors’ effort, firm efficiency and performance of diversified firms: An efficacy-based view of governance," Journal of Business Research, Elsevier, vol. 151(C), pages 593-608.
    9. Emilie R. Feldman, 2016. "Corporate spinoffs and analysts' coverage decisions: The implications for diversified firms," Strategic Management Journal, Wiley Blackwell, vol. 37(7), pages 1196-1219, July.
    10. Siwen Chen & Emilie R. Feldman, 2018. "Activist‐impelled divestitures and shareholder value," Strategic Management Journal, Wiley Blackwell, vol. 39(10), pages 2726-2744, October.
    11. Emilie R. Feldman & Raphael(Raffi) Amit & Belén Villalonga, 2016. "Corporate divestitures and family control," Strategic Management Journal, Wiley Blackwell, vol. 37(3), pages 429-446, March.
    12. Ding, Yang, 2021. "Antecedents and implications of legacy divestitures," Other publications TiSEM f4d5766f-6a5b-43a3-94df-1, Tilburg University, School of Economics and Management.

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