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The role of firm performance in the market reaction to divestiture announcements

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  • Pascal Nguyen

    (University of Technology Sydney)

Abstract

Divestitures have the potential to create shareholder value. However, the magnitude of the wealth effect depends on the likelihood of finding more valuable uses for the divested assets and the seller's ability to eliminate negative synergies. Strong performers should have less scope to benefit compared to poor performers. Using lagged excess returns as a proxy for such opportunities, we show that the market reaction to divestiture announcements is significantly higher for underperforming firms.

Suggested Citation

  • Pascal Nguyen, 2013. "The role of firm performance in the market reaction to divestiture announcements," Economics Bulletin, AccessEcon, vol. 33(3), pages 1723-1728.
    • Handle: RePEc:ebl:ecbull:eb-13-00163
    as

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    References listed on IDEAS

    as
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    More about this item

    Keywords

    divestitures; value creation; firm performance; excess returns;
    All these keywords.

    JEL classification:

    • G1 - Financial Economics - - General Financial Markets
    • G3 - Financial Economics - - Corporate Finance and Governance

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