A meta-analysis of stock market reaction to foreign divestment: the role of divestment motives

Pratik Arte, Roman Filenko and Jorma Larimo

Chapter 6 in Research Handbook on Foreign Exit, Relocation and Re-entry, 2022, pp 109-135 from Edward Elgar Publishing

Abstract: A rise in foreign direct investment (FDI) has resulted in an increased occurrence of foreign divestment. Foreign divestment plays a critical role in the restructuring activities of firms and is known to either create or destroy firm value. While previous studies have examined the valuation effects of foreign divestment, findings have been inconsistent. In this chapter, we conduct a meta-analytical review of the stock market reactions to foreign divestment announcements. Furthermore, we test if the relationship varies according to the motive of divestment. Our findings indicate that foreign divestment creates a significantly positive stock market reaction. The relationship is strongest for refocusing divestments, followed by divestments motivated to raise finances or repay debts, and the weakest for efficiency seeking divestments. Future research suggestions are postulated based on our findings.

Keywords: Business and Management; Economics and Finance (search for similar items in EconPapers)
Date: 2022
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