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A meta-analysis of stock market reaction to foreign divestment: the role of divestment motives

In: Research Handbook on Foreign Exit, Relocation and Re-entry

Author

Listed:
  • Pratik Arte
  • Roman Filenko
  • Jorma Larimo

Abstract

A rise in foreign direct investment (FDI) has resulted in an increased occurrence of foreign divestment. Foreign divestment plays a critical role in the restructuring activities of firms and is known to either create or destroy firm value. While previous studies have examined the valuation effects of foreign divestment, findings have been inconsistent. In this chapter, we conduct a meta-analytical review of the stock market reactions to foreign divestment announcements. Furthermore, we test if the relationship varies according to the motive of divestment. Our findings indicate that foreign divestment creates a significantly positive stock market reaction. The relationship is strongest for refocusing divestments, followed by divestments motivated to raise finances or repay debts, and the weakest for efficiency seeking divestments. Future research suggestions are postulated based on our findings.

Suggested Citation

  • Pratik Arte & Roman Filenko & Jorma Larimo, 2022. "A meta-analysis of stock market reaction to foreign divestment: the role of divestment motives," Chapters, in: Jorma Larimo & Pratik Arte & Carlos M.P. Sousa & Pervez N. Ghauri & José Mata (ed.), Research Handbook on Foreign Exit, Relocation and Re-entry, chapter 6, pages 109-135, Edward Elgar Publishing.
    • Handle: RePEc:elg:eechap:20749_6
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