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Performance effects of corporate divestiture programs

Performance effects of corporate divestiture programs Purpose – The paper aims at extending extant research on sources of divestiture gains by suggesting a novel program‐based perspective on divestitures and analyzing the performance of program divestitures in comparison to single “stand‐alone” divestitures. Design/methodology/approach – Based on event study methodology, the authors analyze the abnormal returns of 160 divestiture announcements within the global insurance industry between 1998 and 2007. In contrast to prior research which relied on ex post statistical clustering to identify transaction programs, ad hoc corporate press releases issued with the divestiture announcements are used to categorize program divestitures. Findings – Empirical results suggest that program divestitures generate higher abnormal returns than stand‐alone divestitures. Further analyses into the sources for these higher gains, however, do not provide support for experience effects as significant explanatory factors. Instead, results suggest that the scheduling of divestitures significantly impacts announcement returns. Research limitations/implications – The scope and single industry setting of the study suggest future cross‐industry research on the influence of divestiture program characteristics on divestiture performance and the conditions under which these programs improve divestiture performance. Practical implications – Managers are advised to refrain from piecemeal divestiture behavior lacking clear strategic focus. Instead, they are encouraged to bundle their divestitures as part of a divestiture program with a clear strategic intent and shared business logic. Originality/value – While prior research on divestitures has treated divestitures as isolated events, the paper directs attention towards the analysis of divestiture programs. Further, experience and timing effects, which have been widely absent from prior divestiture studies, are considered. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Journal of Strategy and Management Emerald Publishing

Performance effects of corporate divestiture programs

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References (147)

Publisher
Emerald Publishing
Copyright
Copyright © 2010 Emerald Group Publishing Limited. All rights reserved.
ISSN
1755-425X
DOI
10.1108/17554251011041760
Publisher site
See Article on Publisher Site

Abstract

Purpose – The paper aims at extending extant research on sources of divestiture gains by suggesting a novel program‐based perspective on divestitures and analyzing the performance of program divestitures in comparison to single “stand‐alone” divestitures. Design/methodology/approach – Based on event study methodology, the authors analyze the abnormal returns of 160 divestiture announcements within the global insurance industry between 1998 and 2007. In contrast to prior research which relied on ex post statistical clustering to identify transaction programs, ad hoc corporate press releases issued with the divestiture announcements are used to categorize program divestitures. Findings – Empirical results suggest that program divestitures generate higher abnormal returns than stand‐alone divestitures. Further analyses into the sources for these higher gains, however, do not provide support for experience effects as significant explanatory factors. Instead, results suggest that the scheduling of divestitures significantly impacts announcement returns. Research limitations/implications – The scope and single industry setting of the study suggest future cross‐industry research on the influence of divestiture program characteristics on divestiture performance and the conditions under which these programs improve divestiture performance. Practical implications – Managers are advised to refrain from piecemeal divestiture behavior lacking clear strategic focus. Instead, they are encouraged to bundle their divestitures as part of a divestiture program with a clear strategic intent and shared business logic. Originality/value – While prior research on divestitures has treated divestitures as isolated events, the paper directs attention towards the analysis of divestiture programs. Further, experience and timing effects, which have been widely absent from prior divestiture studies, are considered.

Journal

Journal of Strategy and Management – Emerald Publishing

Published: May 18, 2010

Keywords: Insurance companies; Divestment; Strategic management

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