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Foreign and Domestic Divestments: Evidence on Valuation Effects of Plant Closings

Author

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  • George P Tsetsekos

    (Drexel University)

  • Michael J Gombola

    (Drexel University)

Abstract

This study examines the valuation consequences of domestic and foreign divestments by comparing the stock price reaction to announcements of domestic plant closings and foreign plant closings. A domestic plant closing could indicate firm-wide problems and impending firm deterioration. A foreign plant may serve to exploit arbitrage opportunities specific to that plant location. Closing a foreign plant need not signify firm-wide problems. Our comparison of stated reasons for closings supports these propositions. Therefore, foreign plant closing announcements should produce a smaller stock price decline that domestic plant closing announcements. Empirical results indicate a significant negative stock price reaction for domestic plant closings and an insignificant negative stock price reaction for foreign plant closings. Differences in stock price reaction remain after controlling for firm-specific factors.© 1992 JIBS. Journal of International Business Studies (1992) 23, 203–223

Suggested Citation

  • George P Tsetsekos & Michael J Gombola, 1992. "Foreign and Domestic Divestments: Evidence on Valuation Effects of Plant Closings," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 23(2), pages 203-223, June.
  • Handle: RePEc:pal:jintbs:v:23:y:1992:i:2:p:203-223
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    Cited by:

    1. Kien Cao & Jeff Madura, 2011. "Determinants of the Method of Payment in Asset Sell‐Off Transactions," The Financial Review, Eastern Finance Association, vol. 46(4), pages 643-670, November.
    2. Tony W. Tong & Jeffrey J. Reuer & Beverly B. Tyler & Shujun Zhang, 2015. "Host country executives' assessments of international joint ventures and divestitures: An experimental approach," Strategic Management Journal, Wiley Blackwell, vol. 36(2), pages 254-275, February.
    3. Song, Sangcheol, 2014. "Unfavorable Market Conditions, Institutional and Financial Development, and Exits of Foreign Subsidiaries," Journal of International Management, Elsevier, vol. 20(3), pages 279-289.
    4. Bichescu, Bogdan & Raturi, Amitabh, 2015. "The antecedents and consequences of plant closing announcements," International Journal of Production Economics, Elsevier, vol. 168(C), pages 197-210.
    5. Chatrath, Arjun & Ramchander, Sanjay & Song, Frank, 1995. "Are market perceptions of corporate layoffs changing?," Economics Letters, Elsevier, vol. 47(3-4), pages 335-342, March.

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