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A Relook into the Impact of Divestitures in the Presence of Agency Conflicts: Evidence from Property Subsidiary Sell-Offs in China

Author

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  • Ruoran Xu

    (Southwestern University of Finance and Economics)

  • Yuen Leng Chow

    (National University of Singapore)

  • Joseph T.L. Ooi

    (National University of Singapore)

Abstract

We analyze property subsidiary sell-offs in China to examine her market reaction to firms’ divestiture decisions. Overall, the response from the stock market is neutral. However, detailed analysis reveals that the market reacts differently to property subsidiary sell-off announcements by state-owned enterprises (SOEs) and non-SOEs. Consistent with findings from extant literature, we find statistically positive market returns associated with non-SOE sell-off announcements. However, we find statistically negative market returns associated with SOE sell-off announcements. We suggest that this divergent market reaction is influenced by the institutional feature of the Chinese market and is consistent with the high agency costs associated with state ownership.

Suggested Citation

  • Ruoran Xu & Yuen Leng Chow & Joseph T.L. Ooi, 2017. "A Relook into the Impact of Divestitures in the Presence of Agency Conflicts: Evidence from Property Subsidiary Sell-Offs in China," The Journal of Real Estate Finance and Economics, Springer, vol. 55(3), pages 313-344, October.
    • Handle: RePEc:kap:jrefec:v:55:y:2017:i:3:d:10.1007_s11146-016-9584-x
    DOI: 10.1007/s11146-016-9584-x
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    Cited by:

    1. Xu, Jingjing & Huang, Haijie & Lee, Edward & Petaibanlue, Jirada, 2023. "Does goodwill pressure drive business restructuring based on subsidiary disposal?," International Review of Financial Analysis, Elsevier, vol. 86(C).

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