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Asset Liquidity and Segment Divestitures

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  • Frederik P. Schlingemann
  • Rene M. Stulz
  • Ralph A. Walkling

Abstract

We investigate a sample of firms whose number of reported segments falls by one or more for the first time in their reporting history. The firms in our sample have a significantly larger diversification discount, underperform, and underinvest relative to comparable firms. Firms are more likely to divest segments from industries with a more liquid market for corporate assets, segments unrelated to the core activities of the firm, poorly performing segments, and small segments. The liquidity of the market for corporate assets plays an important role in explaining why some firms divest assets while others stop reporting them without divesting them, and why some firms divest core segments while others divest unrelated segments.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 7873.

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Date of creation: Sep 2000
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Publication status: published as Schlingemann, Frederik P., Rene M. Stulz and Ralph A. Walkling. "Divestitures And The Liquidity Of The Market For Corporate Assets," Journal of Financial Economics, 2002, v64(1,Apr), 117-144.
Handle: RePEc:nbr:nberwo:7873

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  1. David S. Scharfstein & Jeremy C. Stein, 1997. "The Dark Side of Internal Capital Markets: Divisional Rent-Seeking and Inefficient Investment," NBER Working Papers 5969, National Bureau of Economic Research, Inc.
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  4. Stein, Jeremy C, 1997. " Internal Capital Markets and the Competition for Corporate Resources," Journal of Finance, American Finance Association, vol. 52(1), pages 111-33, March.
  5. Kathleen M. Kahle & Ralph A. Walkling, . "The Impact of Industry Classifications on Financial Research," Research in Financial Economics 9607, Ohio State University.
  6. Vojislav Maksimovic, 2001. "The Market for Corporate Assets: Who Engages in Mergers and Asset Sales and Are There Efficiency Gains?," Journal of Finance, American Finance Association, vol. 56(6), pages 2019-2065, December.
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  10. Kahle, Kathleen M. & Walkling, Ralph A., 1996. "The Impact of Industry Classifications on Financial Research," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 31(03), pages 309-335, September.
  11. Kaplan, Steven N & Weisbach, Michael S, 1992. " The Success of Acquisitions: Evidence from Divestitures," Journal of Finance, American Finance Association, vol. 47(1), pages 107-38, March.
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Cited by:
  1. C�cile Denis & Kieran Mc Morrow & Werner R�ger, 2002. "Production function approach to calculating potential growth and output gaps - estimates for the EU Member States and the US," European Economy - Economic Papers, Directorate General Economic and Monetary Affairs (DG ECFIN), European Commission 176, Directorate General Economic and Monetary Affairs (DG ECFIN), European Commission.
  2. Dobrescu, Emilian, 2006. "Macromodel of the Romanian market economy (version 2005)," MPRA Paper 35749, University Library of Munich, Germany.
  3. Kieran Mc Morrow & Werner Roeger, 2001. "Potential Output: Measurement Methods, "New" Economy Influences and Scenarios for 2001-2010 - A comparison of the EU-15 and the US," European Economy - Economic Papers, Directorate General Economic and Monetary Affairs (DG ECFIN), European Commission 150, Directorate General Economic and Monetary Affairs (DG ECFIN), European Commission.
  4. Vojislav Maksimovic & Gordon Phillips, 2006. "The Industry Life Cycle and Acquisitions and Investment: Does Firm Organization Matter?," NBER Working Papers 12297, National Bureau of Economic Research, Inc.
  5. Dobrescu, Emilian, 2006. "Integration of macroeconomic behavioural relationships and the input-output block: Romanian modelling experience," MPRA Paper 35748, University Library of Munich, Germany.

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