Work

The diversity of divestiture– stock market reactions around the announcements of divestiture programs

Year: 2024

Type: article

Abstract: Single divestitures can adjust a firm’s strategy, while divestiture programs, a series of divestitures with a common rationale, may considerably change a firm’s business. However, this does not always imply a positive impact. Existing evidence on how capital markets evaluate these decisions lacks validation based on the firm’s strategic background. This paper fills this gap by examining stock market reactions to divestiture program announcements, conditional on the firm’s current situation. We explore five key antecedents likely to influence divestiture program decisions: CEO turnover, new blockholder, financial distress, prior divestiture experience, and industry divestiture waves. Examining more than 100 European firms and their divestiture disclosures, our results show that firms announce divestiture programs when financially distressed or after a change in the top management. Market reactions vary but are more positive when program value is disclosed, especially for financially driven programs or those programs which are part of broader restructuring initiatives.

Source: Review of Managerial Science

DOI: 10.1007/s11846-024-00830-5

Authors: Ludwig Erl, Florian Kiesel, Dirk Schiereck

Institutions: Technische Universität Darmstadt, Free University of Bozen-Bolzano

Language: English

Topic: Corporate Finance and Governance

Subfield: Accounting

Field: Business, Management and Accounting

Domain: Social Sciences

Open Access status: hybrid

Estimated APC paid: $2,990

Funder: Libera Università di Bolzano