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Adding by Subtracting: The Relationship Between Performance Feedback and Resource Reconfiguration Through Divestitures

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  • Elena Vidal

    (Zicklin School of Business, Baruch College, City University of New York, New York, New York 10010)

  • Will Mitchell

    (Rotman School of Management, University of Toronto, Toronto, Ontario M5S 2J7, Canada)

Abstract

This paper draws from performance feedback theory and the resource-based view of the firm to study divestiture activity. We argue that the extent and nature of resource reconfiguration through divestiture may be affected by both high and low extremes of performance relative to a firm’s historical aspirations. Based on analysis of divestiture counts, we find that firms with increasing performance, especially when they also have high levels of performance, appear to use divestitures in a “complementary Penrose effect” that frees resources firms can use for future growth, with the greatest impact on the number of partial rather than full divestitures. With more limited data on divestiture value, we find relationships of both increasing and decreasing performance with divestiture activity. The study uses longitudinal segment-level data for firms operating in the global pharmaceutical industry between 1999 and 2009.

Suggested Citation

  • 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.
    • Handle: RePEc:inm:ororsc:v:26:y:2015:i:4:p:1101-1118
    DOI: 10.1287/orsc.2015.0981
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