Voluntary firm restructuring: Why do firms sell or liquidate their subsidiaries?

This paper examines why companies decide to divest a subsidiary in a corporate environment characterised by concentrated ownership, using a unique panel dataset of nonlisted Belgian subsidiaries. The results of the binomial logit analyses are consistent with the idea that management will intervene in order to improve the controlling firm’s focus or when subsidiary performance imposes a burden on the group’s financial situation. When controlling shareholders hold between 50% and 75% of the shares agency problems seem to be most likely. Monitoring on the other hand is most efficient when they hold more than 75% of the shares. Once the divestment decision has been taken, the choice has to be made between a sale and liquidation. The logit analysis reveals that although selling a subsidiary seems the preferred option, liquidation is likely when the firm is small, active in a sector with few competitors and when financial distress is eminent.