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Long-term performance of divesting firms and the effect of managerial ownership

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  • Robert Hanson
  • Moon Song

Abstract

We study the long-term performance of firms that divest assets to assess whether gains arise from reducing agency costs. We find that divesting firms underperform control firms before the divestiture and outperform control firms following the divestiture. The poor performance experienced by divesting firms is unrelated to managerial ownership, but the post-divestiture improvement in performance is strongly related to stock ownership by the CEO. The results support the argument that divestitures remove assets that generate negative synergies and that managerial ownership provides strong incentives to improve operations following the divestiture. Copyright Springer 2003

Suggested Citation

  • Robert Hanson & Moon Song, 2003. "Long-term performance of divesting firms and the effect of managerial ownership," Journal of Economics and Finance, Springer;Academy of Economics and Finance, vol. 27(3), pages 321-336, September.
    • Handle: RePEc:spr:jecfin:v:27:y:2003:i:3:p:321-336
    DOI: 10.1007/BF02761569
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    References listed on IDEAS

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    Cited by:

    1. Erl, Ludwig & Kiesel, Florian & Koenigsmarck, Markus & Schiereck, Dirk, 2023. "Performance effects of sell-offs and the role of sell-off experience," The Quarterly Review of Economics and Finance, Elsevier, vol. 88(C), pages 244-257.
    2. Dirk Engel & Vivien Procher, 2013. "Home Firm Performance After Foreign Investments and Divestitures," The World Economy, Wiley Blackwell, vol. 36(12), pages 1478-1493, December.
    3. Humphery-Jenner, Mark & Powell, Ronan & Zhang, Emma Jincheng, 2019. "Practice makes progress: Evidence from divestitures," Journal of Banking & Finance, Elsevier, vol. 105(C), pages 1-19.
    4. repec:zbw:rwirep:0193 is not listed on IDEAS
    5. Meijui Sun, 2012. "Impact Of Divestiture Activities On Corporate Performance: Evidence From Listed Firms In Taiwan," The International Journal of Business and Finance Research, The Institute for Business and Finance Research, vol. 6(2), pages 59-67.
    6. Pascal Nguyen, 2016. "The role of the seller’s stock performance in the market reaction to divestiture announcements," Journal of Economics and Finance, Springer;Academy of Economics and Finance, vol. 40(1), pages 19-40, January.
    7. Dirk Engel & Vivien Procher, 2010. "Home Firm Performance after Foreign Investments and Divestitures," Ruhr Economic Papers 0193, Rheinisch-Westfälisches Institut für Wirtschaftsforschung, Ruhr-Universität Bochum, Universität Dortmund, Universität Duisburg-Essen.
    8. Huang, Hsu-Huei & Chan, Min-Lee & Huang, I-Hsiang & Chang, Chih-Hsiang, 2011. "Stock price volatility and overreaction in a political crisis: The effects of corporate governance and performance," Pacific-Basin Finance Journal, Elsevier, vol. 19(1), pages 1-20, January.
    9. Jiafeng Gu, 2023. "Firm Performance and Corporate Social Responsibility: Spatial Context and Effect Mechanism," SAGE Open, , vol. 13(1), pages 21582440231, January.
    10. Decker, Carolin & Mellewigt, Thomas, 2007. "The drivers and implications of business divestiture: An application and extension of prior findings," SFB 649 Discussion Papers 2007-054, Humboldt University Berlin, Collaborative Research Center 649: Economic Risk.
    11. Zhonghua Wu & Andrew Delios, 2009. "The Emergence of Portfolio Restructuring in Japan," Management International Review, Springer, vol. 49(3), pages 313-335, June.
    12. Dionysia Dionysiou, 2015. "Choosing Among Alternative Long-Run Event-Study Techniques," Journal of Economic Surveys, Wiley Blackwell, vol. 29(1), pages 158-198, February.

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