Corporate Divestiture Decisions and Long-Run Performance

Dung (June) Pham, Thanh Nguyen, Trang Minh Pham and Hari Adhikari

Journal of Behavioral Finance, 2021, vol. 22, issue 2, 126-140

Abstract: We examine the post-divestiture long-run performance of two different choices of corporate divestiture, asset sell-offs versus equity carve-outs, and find that the choice of divestiture methods has important implications for the post-divestiture long-run performance. Our findings show that the post-divestiture long-run abnormal returns of sell-off parents are significantly higher than those of the carve-out parents. Furthermore, we find a positive relationship between the post-divestiture long-run returns and the diversification discount. The effect of the diversification discount is weaker for divesting parents with higher levels of R&D. Our results also provide evidence that a firm’s pre-divestiture number of segments, its unrelatedness to the divested unit, and its level of asymmetric information are positively related to the probability of choosing the asset sell-off method.

Date: 2021
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DOI: 10.1080/15427560.2020.1735389

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