The economic causes and consequences of corporate divestiture
AbstractThis study investigates economic causes and consequences of large corporate divestitures between 1983 and 1987. Prior empirical evidence suggests that firms hold on to poorly performing operating units for many years before divestiture. An agency-cost explanation for 'holding on to losers' has been proposed in the literature, as managers may be unwilling to admit they invested in inappropriate asset choices in the first place. However, a puzzle still remains: why should such a manager ever sell off such a unit? We provide both a possible explanation and empirical evidence that suggests managers hold on to losers as long as they can 'blur' their poor performance under the cover of the remaining operating units of the firm. We find that firms do not sell off poorly performing business units until the firm's other units experience significant underperformance relative to their industry peers. Finally, although there is evidence that the stock market reacts favorably to divestitures, we find that beyond the initial improvement, the firm's performance reverts back to its mean pre-divestiture level.© 1997 John Wiley & Sons, Ltd.
Download InfoTo our knowledge, this item is not available for download. To find whether it is available, there are three options:
1. Check below under "Related research" whether another version of this item is available online.
2. Check on the provider's web page whether it is in fact available.
3. Perform a search for a similarly titled item that would be available.
Bibliographic InfoArticle provided by John Wiley & Sons, Ltd. in its journal Managerial and Decision Economics.
Volume (Year): 18 (1997)
Issue (Month): 5 ()
Contact details of provider:
Web page: http://www3.interscience.wiley.com/cgi-bin/jhome/7976
You can help add them by filling out this form.
CitEc Project, subscribe to its RSS feed for this item.
- John Kwoka & Michael Pollitt & Sanem Sergici, 2010.
"Divestiture policy and operating efficiency in U.S. electric power distribution,"
Journal of Regulatory Economics, Springer,
Springer, vol. 38(1), pages 86-109, August.
- Kwoka, J. & Ozturk, S. & Pollitt, M.G., 2008. "Divestiture Policy and Operating Efficiency in U.S. Electric Power Distribution," Cambridge Working Papers in Economics, Faculty of Economics, University of Cambridge 0835, Faculty of Economics, University of Cambridge.
- Panos Desyllas, 2009. "Improving performance through vertical disintegration: evidence from UK manufacturing firms," Managerial and Decision Economics, John Wiley & Sons, Ltd., John Wiley & Sons, Ltd., vol. 30(5), pages 307-324.
- Evžen Kocenda & Jan Hanousek, 2011.
"Divide and Privatize: Firm Break-up and Performance,"
CESifo Working Paper Series
3465, CESifo Group Munich.
- Evžen Kočenda & Jan Hanousek, 2010. "Divide and Privatize : Firms Break-up and Performance," Working Papers, Institut fÃ¼r Ost- und SÃ¼dosteuropaforschung (Institute for East and South-East European Studies) 291, Institut für Ost- und Südosteuropaforschung (Institute for East and South-East European Studies).
- Borland, Jeff & Lee, Leng & Macdonald, Robert D., 2011. "Escalation effects and the player draft in the AFL," Labour Economics, Elsevier, Elsevier, vol. 18(3), pages 371-380, June.
- Evžen Kočenda & Jan Hanousek, 2011. "Effect of the Czech Firms Break-Up on their Profitability and Productivity," Politická ekonomie, University of Economics, Prague, University of Economics, Prague, vol. 2011(5), pages 579-598.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Wiley-Blackwell Digital Licensing) or (Christopher F. Baum).
If references are entirely missing, you can add them using this form.