Causes and Effects of Corporate Refocusing Programs

Philip G. Berger and Eli Ofek

New York University, Leonard N. Stern School Finance Department Working Paper Seires from New York University, Leonard N. Stern School of Business-

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.

Date: 1997-08
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Persistent link: https://EconPapers.repec.org/RePEc:fth:nystfi:98-008

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