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A Bridge Too Far: Divestiture as a Strategic Reaction to Status Inconsistency

Author

Listed:
  • Pengfei Wang

    (Department of Strategy and Entrepreneurship, BI Norwegian Business School, 0484 Oslo, Norway)

  • Michael Jensen

    (Stephen M. Ross School of Business, University of Michigan, Ann Arbor, Michigan 48109)

Abstract

This study focuses on the market identities of firms and suggests that identity ambiguity is caused not only by bridging horizontal product categories but also by status inconsistency stemming from bridging vertical status categories. Focusing specifically on how firms reduce status inconsistency by restructuring their business portfolios, we argue that status inconsistency motivates firms to divest business units to present a more coherent vertical market identity. Emphasizing the interplay between horizontal and vertical identity ambiguity, we argue furthermore that status-inconsistent units that are related to the core business units within a firm are more likely to be divested. Using a comprehensive sample of publicly traded U.S. firms from 1998 to 2014, we report that status inconsistency increases the likelihood of divestiture that decreases status inconsistency, particularly for high-status firms. Moreover, although status-inconsistent units are generally more likely to be divested, this effect is stronger for core business units.

Suggested Citation

  • Pengfei Wang & Michael Jensen, 2019. "A Bridge Too Far: Divestiture as a Strategic Reaction to Status Inconsistency," Management Science, INFORMS, vol. 65(2), pages 859-878, February.
    • Handle: RePEc:inm:ormnsc:v:65:y:2019:i:2:p:859-878
    DOI: 10.1287/mnsc.2017.2964
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