How and why corporate divestitures affect risk

Jeff Madura and Maryna Murdock

Applied Financial Economics, 2012, vol. 22, issue 22, 1919-1929

Abstract: We find that in general, parents experience an increase in risk following divestitures, although the specific increase is conditioned on the form of divestiture and the type of proxy used to measure risk. The increase in risk following divestitures is generally higher for carve-outs than for asset sell-offs. The increase in risk in response to all forms of divestitures is more pronounced when parents eliminate related assets than when they eliminate unrelated assets, and when parents increase their financial leverage. Overall, our findings suggest that the shift in parent risk is associated with the remaining asset and liability structure of the parent. This implies that the parents have much control over the degree to which the divestiture will change their risk, based on the types of assets divested (whether related to parent's remaining assets), and the liability structure of units divested (the amount of debt that the parent transfers to the unit).

Date: 2012
References: Add references at CitEc
Citations: View citations in EconPapers (3)

Downloads: (external link)
http://hdl.handle.net/10.1080/09603107.2012.688937 (text/html)
Access to full text is restricted to subscribers.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:taf:apfiec:v:22:y:2012:i:22:p:1919-1929

Ordering information: This journal article can be ordered from
http://www.tandfonline.com/pricing/journal/RAFE20

DOI: 10.1080/09603107.2012.688937

Access Statistics for this article

Applied Financial Economics is currently edited by Anita Phillips

More articles in Applied Financial Economics from Taylor & Francis Journals
Bibliographic data for series maintained by Chris Longhurst ().