Asset sales and increase in focus

John, Kose; Ofek, Eli

doi:10.1016/0304-405x(94)00794-2

Cited by 611 publications

(430 citation statements)

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“…Corporate divestitures are an example of one such change. Divestitures improve managerial focus (Markides 1992, Comment and Jarrell 1995, John and Ofek 1995, Daley et al 1997, Desai and Jain 1999, Berger and Ofek 1999, remove slow-growing or underperforming business units (Porter 1987, Kaplan and Weisbach 1992, Hayward and Shimizu 2006, Shimizu 2007, Berry 2010, and clarify external perceptions (Zuckerman 2000, Gilson et al 2001, Bergh et al 2008. These changes should signal to investors that the divesting company's long-term prospects will improve.…”

Section: Legacy Divestitures: Motivesmentioning

confidence: 99%

Legacy Divestitures: Motives and Implications

Feldman

2014

Organization Science

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This paper investigates "legacy divestitures," the sale or spinoff of a company's original, or "legacy," business. The central tension considered in this work is that the historical presence of a firm's legacy business should simultaneously make that unit very interdependent with the company's remaining operations and make the firm's managers highly likely to take those same interdependencies for granted. Consistent with these predictions, the post-divestiture operating performance of firms that divest their legacy businesses falls short of that of firms that retain comparable legacy units, especially when the divested unit operates in the same industry as others of the divesting firm's businesses. Newer chief executive officers (CEOs) are more likely to undertake legacy divestitures than their longer-tenured peers, and the most recently appointed CEOs undertake the most costly legacy divestitures. In summary, this paper provides insights into how historical interdependencies create value in diversified firms, as well as the decision-making processes that managers follow in overseeing these companies. Abstract This paper investigates "legacy divestitures," the sale or spinoff of a company's original, or "legacy" business. The central tension considered in this work is that the historical presence of a firm's legacy business should simultaneously make that unit very interdependent with the company's remaining operations and make the firm's managers highly likely to take those same interdependencies for granted. Consistent with these predictions, the post-divestiture operating performance of firms that divest their legacy businesses falls short of that of firms that retain comparable legacy units, especially when the divested unit operates in the same industry as others of the divesting firm's businesses. Newer CEOs are more likely to undertake legacy divestitures than their longer-tenured peers, and the most recently-appointed CEOs undertake the most costly legacy divestitures. In sum, this paper provides insights into how historical interdependencies create value in diversified firms, as well as the decision-making processes managers follow in overseeing these companies.

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Section: Legacy Divestitures: Motivesmentioning

confidence: 99%

Legacy Divestitures: Motives and Implications

Feldman

2014

Organization Science

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“…More specifically, as discussed by Schlingemann, Stulz & Walkling (2002), these explanations can be grouped in three main categories. Focusing explanations put more weight on the efforts of the firm to reduce diversification and concentrate on core activities (see Berger and Ofek, 1999;John and Ofek, 1995). Efficiency explanations suggest that this decision is the result of efforts to allocate assets to those firms that can operate them in the most efficient manner (see Hite, Owers & Rogers, 1987;Jain, 1985;Maksimovic and Phillips, 2001).…”

Section: Causes and Effects Of Turnover In Human Resourcesmentioning

confidence: 99%

Human Resources Turnover as an Asset Acquisition, Accumulation and Divesture Process

Fotaki,

Markellos,

Mania

2009

SSRN Journal

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“…Also, sell-offs which are associated with an increase in focus are positively related to performance enhancements in the three years following the divestiture. Stock price reactions are better for focus-increasing than for other divesting firms (John & Ofek, 1995). Referring to refocusing, Markides (1992) demonstrates that the relationship between diversification and firm profitability is curvilinear, i.e., lower levels of diversification are positively related to profitability, and after exceeding the optimal degree the relation turns negative.…”

Section: Firm Performancementioning

confidence: 98%

Thirty Years After Michael E. Porter: What Do We Know About Business Exit?

Decker

Mellewigt

2007

AMP

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Executive OverviewAlthough a business exit is an important corporate change initiative, the buyer's side seems to be more appealing to management researchers than the seller's because acquisitions imply growth, i.e., success. Yet from an optimistic viewpoint, business exit can effectively create value for the selling company. In this paper we attempt to bring the relevance of the seller's side back into our consciousness by asking: What do we know about business exit? We start our exploration with Porter (1976), focusing on literature that investigates the antecedents of, barriers to, and outcomes of business exit. We also include studies from related fields such as finance and economics. 1 Through this research we determine three clusters of findings: factors promoting business exit, exit barriers, and exit outcomes. Overall, it is the intention of this paper to highlight the importance of business exit for research and practice. Knowing what we know about business exits and their high financial value we should bear in mind that exit need not mean failure but a new beginning for a corporation.B usiness exit is an asset restructuring activity involving a diversified firm's divestiture of one of its businesses, such as Intel's abandonment of its DRAM business (Burgelman, 1996). Interest in this topic can be traced back to publications that represent milestones in economic research such as Bain (1956), who established the concept of barriers to entry, Caves ' (1964) analysis of the American industry, and the seminal article on exit barriers by Porter published in California Management Review in 1976, which helped raise the interest in business exit among a broad audience. Data from the U.S. illustrate that business exit continues to be relevant (cf. Figure 1). In the U.S., business services, real estate, and software were the most active divesting industries in 2005. A recent study by the consulting company Accenture highlights the growing relevance of business exits for years to come and predicts that " [f]or the next years, many companies will give far more thought to divestitures than they did in the late 1990s" (Anslinger, Jenk, & Chanmugam, 2003).Although a business exit is an important corporate change initiative, the buyer's side seems to be more appealing to management researchers than the seller's because acquisitions imply growth, i.e., success. This preference for the "success" side can be seen at the industry level as well. Managers, for example, may resist business exit because it is afflicted with the stigma of failure and is often seen as a result of poor corporate management. The reluctance of managers to admit that their organization or at least parts of it are in trouble is evidence of their substantial personal preoccupation with growth and their large personal costs in case of exit (Gilson, 1989). Yet from an optimistic point of view, business exit can effectively create value for the selling company. Indeed, the stigma certainly wasn't a factor for former GE CEO Jack Welch. Under his leadersh...

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Asset sales and increase in focus

Cited by 611 publications

References 29 publications

Legacy Divestitures: Motives and Implications

Legacy Divestitures: Motives and Implications

Human Resources Turnover as an Asset Acquisition, Accumulation and Divesture Process

Thirty Years After Michael E. Porter: What Do We Know About Business Exit?

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