Which governance characteristics affect the incidence of divestitures in Australia?

Pascal Nguyen () and Nahid Rahman
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Pascal Nguyen: Axe 2 (2011-2016) : « Marchés, Cultures de consommation, Autonomie et Migrations » (MSHS Poitiers) - MSHS de Poitiers - Maison des sciences de l'homme et de la société de Poitiers - UP - Université de Poitiers = University of Poitiers - CNRS - Centre National de la Recherche Scientifique, UTS - University of Technology Sydney

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Abstract: Event studies indicate that divestitures create shareholder value. However, managers are generally disinclined to execute a divestiture due to their inherent preferences for growing the firm's assets. Governance structures can play a significant role in restraining this agency conflict. Using a sample of divestitures carried out by Australian firms over a recent 10-year period, we find that board compensation and ownership concentration increase the likelihood of a divestiture. In addition, board compensation has a stronger effect in firms that are more likely to divest, while larger boards inhibit divestitures in firms that are less likely to divest. Our analysis involves a propensity score matching method. We show that poor matching can lead to large biases and inconsistencies.

Keywords: Restructuring; Propensity score; Agency conflicts; Corporate governance; Divestiture; Matching (search for similar items in EconPapers)
Date: 2014
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Published in Australian Journal of Management, 2014, 40, pp.351-374. ⟨10.1177/0312896213517517⟩

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Journal Article: Which governance characteristics affect the incidence of divestitures in Australia? (2015)
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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:halshs-01370690

DOI: 10.1177/0312896213517517

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