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Asset sales and firm strategy: an analysis of divestitures by UK companies

Author

Listed:
  • David Hillier
  • Patrick McColgan
  • Samwel Werema

Abstract

This paper examines the financial causes and consequences of the decision to sell-off non-financial assets as part of a new or ongoing restructuring programme by UK non-financial companies between 1993 and 2000. We report that asset sales follow a period of declining operating returns and tend to occur in diversified companies with high levels of financial leverage. Stock prices respond positively to asset sale announcements. This arises due to improvements in operating returns and a decline in financial leverage and corporate diversification subsequent to the disposal. Our findings suggest that asset sales represent an effective operational response to a firm's poor financial condition. However, we also find that a manager's decision to sell assets is strongly influenced by the explicit threats to their control from lenders and competition from product, labour and takeover markets.

Suggested Citation

  • David Hillier & Patrick McColgan & Samwel Werema, 2009. "Asset sales and firm strategy: an analysis of divestitures by UK companies," The European Journal of Finance, Taylor & Francis Journals, vol. 15(1), pages 71-87.
  • Handle: RePEc:taf:eurjfi:v:15:y:2009:i:1:p:71-87
    DOI: 10.1080/13518470802173438
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    Citations

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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. Nguyen, Pascal & Rahman, Nahid & Zhao, Ruoyun, 2013. "Ownership structure and divestiture decisions: Evidence from Australian firms," International Review of Financial Analysis, Elsevier, vol. 30(C), pages 170-181.
    3. repec:spr:scient:v:102:y:2015:i:3:d:10.1007_s11192-014-1495-0 is not listed on IDEAS
    4. Pascal Nguyen, 2016. "The role of the seller’s stock performance in the market reaction to divestiture announcements," Journal of Economics and Finance, Springer;Academy of Economics and Finance, vol. 40(1), pages 19-40, January.
    5. Jackson, Scott B. & Rodgers, Theodore C. & Tuttle, Brad, 2010. "The effect of depreciation method choice on asset selling prices," Accounting, Organizations and Society, Elsevier, vol. 35(8), pages 757-774, November.
    6. Pascal Nguyen, 2013. "The role of firm performance in the market reaction to divestiture announcements," Economics Bulletin, AccessEcon, vol. 33(3), pages 1723-1728.

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