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What explains the market reaction to divestiture announcements?

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Abstract

We show that announcements of divestitures by Australian firms induce a significant increase in shareholder value. While the extent of the market reaction depends on the relative size of the divested asset, high leverage and poor operating performance do not appear to generate higher returns. The application of quantile regressions reveals a high degree of asymmetry in the market reaction. We also find that increased focus through the divestiture of non-core assets is no longer associated with higher returns.

Suggested Citation

  • Justin R Lal & Pascal Nguyen & Nahid Rahman, 2013. "What explains the market reaction to divestiture announcements?," Published Paper Series 2013-6, Finance Discipline Group, UTS Business School, University of Technology, Sydney.
  • Handle: RePEc:uts:ppaper:2013-6
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    Cited by:

    1. Pascal Nguyen & Nahid Rahman, 2015. "Which governance characteristics affect the incidence of divestitures in Australia?," Australian Journal of Management, Australian School of Business, vol. 40(2), pages 351-374, May.
    2. Daniel Chai & Ziyang Lin & Chris Veld, 2018. "Value-creation through spin-offs: Australian evidence," Australian Journal of Management, Australian School of Business, vol. 43(3), pages 353-372, August.

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