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Divestitures and Divisional Investment Policies

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  • Amy Dittmar

    (University of Michigan)

  • Anil Shivdasani

    (University of North Carolina)

Abstract

We study a sample of diversified firms that alter their organizational structure by divesting a business segment. These firms experience a reduction in the diversification discount after the divestiture. We show that the efficiency of segment investment increases substantially following the divestiture and that this improvement is associated with a decrease in the diversification discount. Our results support the corporate focus and financing hypotheses for corporate divestitures. We demonstrate that inefficient investment is partly responsible for the diversification discount and show that asset sales lead to an improvement in the efficiency of investment for remaining divisions. Copyright 2003 by the American Finance Association.

Suggested Citation

  • Amy Dittmar & Anil Shivdasani, 2003. "Divestitures and Divisional Investment Policies," Journal of Finance, American Finance Association, vol. 58(6), pages 2711-2744, December.
  • Handle: RePEc:bla:jfinan:v:58:y:2003:i:6:p:2711-2744
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    References listed on IDEAS

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