Causes and Effects of Corporate Refocusing Programs

Philip G Berger and Eli Ofek

The Review of Financial Studies, 1999, vol. 12, issue 2, 311-45

Abstract: We study the precursors and outcomes of refocusing episodes by 107 diversified firms that were not taken over between 1984 and 1993. These firms had more value-reducing diversification policies than diversified firms that did not refocus. However, major disciplinary or incentive-altering events (including management turnover, outside shareholder pressure, changes in management compensation, and financial distress) usually occurred before refocusing took place. The cumulative abnormal returns over a firm's refocusing-related announcements averaged 7.3% and were significantly related to the amount of value reduction associated with the refocuser's diversification policy. Article published by Oxford University Press on behalf of the Society for Financial Studies in its journal, The Review of Financial Studies.

Date: 1999
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The Review of Financial Studies is currently edited by Itay Goldstein

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