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Asset sales and firm strategy: an analysis of divestitures by UK companies

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  • David Hillier
  • Patrick McColgan
  • Samwel Werema

Abstract

This paper examines the financial causes and consequences of the decision to sell-off non-financial assets as part of a new or ongoing restructuring programme by UK non-financial companies between 1993 and 2000. We report that asset sales follow a period of declining operating returns and tend to occur in diversified companies with high levels of financial leverage. Stock prices respond positively to asset sale announcements. This arises due to improvements in operating returns and a decline in financial leverage and corporate diversification subsequent to the disposal. Our findings suggest that asset sales represent an effective operational response to a firm's poor financial condition. However, we also find that a manager's decision to sell assets is strongly influenced by the explicit threats to their control from lenders and competition from product, labour and takeover markets.

Suggested Citation

  • David Hillier & Patrick McColgan & Samwel Werema, 2009. "Asset sales and firm strategy: an analysis of divestitures by UK companies," The European Journal of Finance, Taylor & Francis Journals, vol. 15(1), pages 71-87.
    • Handle: RePEc:taf:eurjfi:v:15:y:2009:i:1:p:71-87
    DOI: 10.1080/13518470802173438
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    Citations

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    Cited by:

    1. Chun Yu Mak & Norman Strong & Martin Walker, 2011. "Conditional Earnings Conservatism and Corporate Refocusing Activities," Journal of Accounting Research, Wiley Blackwell, vol. 49(4), pages 1041-1082, September.
    2. Pascal Nguyen & Nahid Rahman, 2015. "Which governance characteristics affect the incidence of divestitures in Australia?," Australian Journal of Management, Australian School of Business, vol. 40(2), pages 351-374, May.
    3. Forcadell, Francisco Javier & Sanchez-Riofrio, Angelica & Guerras-Martín, Luis Ángel & Romero-Jordán, Desiderio, 2020. "Is the restructuring-performance relationship moderated by the economic cycle and the institutional environment for corporate governance?," Journal of Business Research, Elsevier, vol. 110(C), pages 397-407.
    4. 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.
    5. Angélica María Sánchez-Riofrío & Luis Ángel Guerras-Martín & Francisco Javier Forcadell, 2015. "Business portfolio restructuring: a comprehensive bibliometric review," Scientometrics, Springer;Akadémiai Kiadó, vol. 102(3), pages 1921-1950, March.
    6. Mak, Chun Yu, 2016. "Do market predictions affect its reaction to UK listed industrial firms' corporate refocusing announcements?," The British Accounting Review, Elsevier, vol. 48(4), pages 464-478.
    7. Jackson, Scott B. & Rodgers, Theodore C. & Tuttle, Brad, 2010. "The effect of depreciation method choice on asset selling prices," Accounting, Organizations and Society, Elsevier, vol. 35(8), pages 757-774, November.
    8. Boulifa, Hichem & Uchida, Konari, 2022. "Like father, like son: Who creates listed subsidiaries?," Journal of the Japanese and International Economies, Elsevier, vol. 64(C).
    9. Pascal Nguyen, 2013. "The role of firm performance in the market reaction to divestiture announcements," Economics Bulletin, AccessEcon, vol. 33(3), pages 1723-1728.

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