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Divestitures: wealth transfers or real economic gains?

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  • Abdul-Magid Gadad
  • Andrew Stark
  • Hardy Thomas

Abstract

We investigate whether divestitures are associated with changes in operating performance. We evaluate the total operating performance of a pro-forma combination of seller and buyer firm in each divestiture and of the seller and buyer firms separately. We control for industry performance, pre-sale performance of the seller and buyer firms and the level of persistence in their operating performances. The total operating performance of the pro-forma combination increases by 3.2% per annum and the operating performance of the seller (buyer) firms increases by 3.0% (3.1%) per annum, on average, for 3 years after the sell offs. We conclude that divestitures lead to real economic gains and not merely a zero-sum transfer.

Suggested Citation

  • Abdul-Magid Gadad & Andrew Stark & Hardy Thomas, 2009. "Divestitures: wealth transfers or real economic gains?," Applied Financial Economics, Taylor & Francis Journals, vol. 19(13), pages 1073-1081.
  • Handle: RePEc:taf:apfiec:v:19:y:2009:i:13:p:1073-1081
    DOI: 10.1080/09603100701335440
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    Cited by:

    1. Christina Dargenidou & Alan Gregory & Shan Hua, 2016. "How far does financial reporting allow us to judge whether M&A activity is successful?," Accounting and Business Research, Taylor & Francis Journals, vol. 46(5), pages 467-499, August.

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