Foreign and Domestic Divestments: Evidence on Valuation Effects of Plant Closings

George P Tsetsekos and Michael J Gombola
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George P Tsetsekos: Drexel University
Michael J Gombola: Drexel University

Journal of International Business Studies, 1992, vol. 23, issue 2, 203-223

Abstract: This study examines the valuation consequences of domestic and foreign divestments by comparing the stock price reaction to announcements of domestic plant closings and foreign plant closings. A domestic plant closing could indicate firm-wide problems and impending firm deterioration. A foreign plant may serve to exploit arbitrage opportunities specific to that plant location. Closing a foreign plant need not signify firm-wide problems. Our comparison of stated reasons for closings supports these propositions. Therefore, foreign plant closing announcements should produce a smaller stock price decline that domestic plant closing announcements. Empirical results indicate a significant negative stock price reaction for domestic plant closings and an insignificant negative stock price reaction for foreign plant closings. Differences in stock price reaction remain after controlling for firm-specific factors.© 1992 JIBS. Journal of International Business Studies (1992) 23, 203–223

Date: 1992
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