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Causes and Effects of Corporate Refocusing Programs

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  • Philip G. Berger
  • Eli Ofek

Abstract

We study the precursors and outcomes of refocusing episodes by diversified firms that were not taken over. Those that refocus have more value-reducing diversification policies than those not refocusing. Major disciplinary or incentive-altering events (including management turnover, outside shareholder pressure, changes in management compensation, and financial distress) usually must occur, however, before managers refocus. Consistent with divestitures reversing, at least in part, value destruction from unsuccessful diversification strategies, the cumulative abnormal returns over a firm's refocusing-related announcements average 7.3%, and are significantly related to the amount of value-reduction associated with the refocuser's diversification policy.

Suggested Citation

  • Philip G. Berger & Eli Ofek, 1997. "Causes and Effects of Corporate Refocusing Programs," New York University, Leonard N. Stern School Finance Department Working Paper Seires 98-008, New York University, Leonard N. Stern School of Business-.
  • Handle: RePEc:fth:nystfi:98-008
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    Cited by:

    1. Bricker, Robert & Chandar, Nandini, 2000. "Where Berle and Means went wrong: a reassessment of capital market agency and financial reporting," Accounting, Organizations and Society, Elsevier, vol. 25(6), pages 529-554, August.
    2. Mitchell Berlin, 1999. "Jack of all trades? Product diversification in nonfinancial firms," Business Review, Federal Reserve Bank of Philadelphia, issue May, pages 15-29.

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