Valuation consequences of the decision to divest in the globalized world

This study documents a significant difference between the positive announcement returns associated with the divestitures of domestic and foreign assets by U.S. publicly traded firms. On average, the announcements of foreign divestitures lead to 3-day cumulative returns 0.55% lower than the announcements of domestic asset sell-offs. Significant leakage is documented prior to the announcement of domestic asset sell-offs, but not foreign. Accounting for the information leakage during the 30days prior to the announcement increases the foreign divestiture discount to almost 2%. The difference in the pre- and within- announcement returns is consistent with the information asymmetry faced by the investors. As the relative deal size increases, investors have more incentives to discover the true value of the divestiture, leading to a stronger market reaction. A reduction of information frictions through cultural proximity and common language also leads to higher returns for the seller. The asset’s and the acquirer’s country-level characteristics influence the seller’s returns.