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The Drivers and Implications of Business Divestiture – An Application and Extension of Prior Findings

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  • Carolin Decker
  • Thomas Mellewigt

Abstract

The purpose of this study is to extend the current understanding of business divestiture by investigating its potential for triggering strategic reorientation. A divestiture involving strategic reorientation is here denoted as a strategic business exit, otherwise it is a status quopreserving business exit. The motives for divestiture specified in prior studies are mainly associated with firm financial performance and corporate strategy. Most studies investigate their impact on divestiture separately though both may interact. This study contributes to research by, first, distinguishing divestiture types, and, second, empirically testing the influence of performance and strategy both separately and in conjunction on the choice between strategic and status quo-preserving business exit with secondary data on 213 divestitures during 1999-2004 which were undertaken by a cross-industry sample of 91 firms listed in the German CDAX. The findings mainly indicate that firm financial performance is a stronger predictor of strategic business exit than corporate strategy.

Suggested Citation

  • Carolin Decker & Thomas Mellewigt, 2007. "The Drivers and Implications of Business Divestiture – An Application and Extension of Prior Findings," SFB 649 Discussion Papers SFB649DP2007-054, Sonderforschungsbereich 649, Humboldt University, Berlin, Germany.
  • Handle: RePEc:hum:wpaper:sfb649dp2007-054
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    Keywords

    Divestiture; Exit; Strategic Reorientation; Performance; Strategy; Diversification.;

    JEL classification:

    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • L25 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Performance
    • M10 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - General

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