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Which governance characteristics affect the incidence of divestitures in Australia?

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  • Pascal Nguyen

    (Axe 2 (2011-2016) : « Marchés, Cultures de consommation, Autonomie et Migrations » (MSHS Poitiers) - MSHS de Poitiers - Maison des sciences de l'homme et de la société de Poitiers - UP - Université de Poitiers = University of Poitiers - CNRS - Centre National de la Recherche Scientifique, UTS - University of Technology Sydney)

  • Nahid Rahman

    (UTS - University of Technology Sydney)

Abstract

Event studies indicate that divestitures create shareholder value. However, managers are generally disinclined to execute a divestiture due to their inherent preferences for growing the firm's assets. Governance structures can play a significant role in restraining this agency conflict. Using a sample of divestitures carried out by Australian firms over a recent 10-year period, we find that board compensation and ownership concentration increase the likelihood of a divestiture. In addition, board compensation has a stronger effect in firms that are more likely to divest, while larger boards inhibit divestitures in firms that are less likely to divest. Our analysis involves a propensity score matching method. We show that poor matching can lead to large biases and inconsistencies.

Suggested Citation

  • Pascal Nguyen & Nahid Rahman, 2014. "Which governance characteristics affect the incidence of divestitures in Australia?," Post-Print halshs-01370690, HAL.
    • Handle: RePEc:hal:journl:halshs-01370690
    DOI: 10.1177/0312896213517517
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    More about this item

    Keywords

    Restructuring; Propensity score; Agency conflicts; Corporate governance; Divestiture; Matching;
    All these keywords.

    JEL classification:

    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance

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