Acquisition of Divested Assets and Shareholders' Wealth

Neil W Sicherman and Richard H Pettway

Journal of Finance, 1987, vol. 42, issue 5, 1261-73

Abstract: The divesting of corporate assets has become quite popular. Previous studies of divestitures have found conflicting impacts upon shareholders' wealth of the buying firm. This study measures the impacts of product-line relatedn ess between the acquiring firm and the divested unit and the financia l weakness of the selling firm upon the abnormal returns to the acqui ring firm. Although the study finds that the impact of financial stre ngth of the seller is ambiguous, the purchase of related assets produ ces more wealth than does the purchase of unrelated divested units. F urther, firms which purchase related divested units have larger propo rtions of insider ownership. Copyright 1987 by American Finance Association.

Date: 1987
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