Which Governance Characteristics Affect the Incidence of Divestitures in Australia?

Pascal Nguyen and Nahid Rahman

No 180, Working Paper Series from Finance Discipline Group, UTS Business School, University of Technology, Sydney

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: divestitures; restructuring; corporate governance; agency conflicts; propensity score matching (search for similar items in EconPapers)
JEL-codes: G34 (search for similar items in EconPapers)
Pages: 35 pages
Date: 2014-01-01
New Economics Papers: this item is included in nep-bec
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Published as: Nguyen, P. and Rahman, N., 2015, "Which Governance Characteristics Affect the Incidence of Divestitures in Australia?", Scientometrics, 40(2), 351-374.

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Related works:
Journal Article: Which governance characteristics affect the incidence of divestitures in Australia? (2015)
Working Paper: Which governance characteristics affect the incidence of divestitures in Australia? (2014)
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