Legacy Divestitures: Motives and Implications

Feldman, Emilie R.

doi:10.1287/orsc.2013.0873

Cited by 85 publications

(83 citation statements)

References 89 publications

(106 reference statements)

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“…This paper enhances our understanding of subtractive change by theorizing links among organizational separation, autonomy, independence, and mutual respect and disrespect, shedding light on the process of subtractive change rather than on its antecedents (e.g., Feldman, 2013) or performance outcomes (e.g., Vidal and Mitchell, 2015). Our process model contributes to the strategic divestiture literature by moving beyond questions of how many and what types of interorganizational ties are beneficial for divesting and divested units (Feldman, 2016) and highlighting that the negotiation and management of ties over time is critical for newly separated units to develop organizational autonomy.…”

Section: Discussionmentioning

confidence: 90%

Cutting the Cord: Mutual Respect, Organizational Autonomy, and Independence in Organizational Separation Processes

Wiedner

Mantere

2018

Administrative Science Quarterly

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Based on a longitudinal, qualitative analysis of developments in the English National Health Service, we develop a process model of how organizations divest or spin off units with the aim of establishing two or more autonomous organizational entities while simultaneously managing their continued interdependencies. We find that effective organizational separation depends on generating two types of respect-appraisal and recognition respect-between the divesting and divested units. Appraisal respect involves showing appreciation for competence or the effort to achieve it, while recognition respect requires considering what someone cares about-such as values or concerns-and acknowledging that they matter. The process model we develop shows that open communication is crucial to the development of both. We also find that certain attempts to gain organizational independence and respect may unintentionally undermine the development of autonomy. Counterintuitively, we find that increasing or maintaining interorganizational links via communication may facilitate organizational separation, while attempts by units to distance themselves from one another may unintentionally inhibit it. By linking organizational separation, autonomy, independence, and respect, this paper develops theory on organizational separation processes and more generally enhances our understanding of organizational autonomy and its relations with mutual respect.

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Section: Discussionmentioning

confidence: 90%

Cutting the Cord: Mutual Respect, Organizational Autonomy, and Independence in Organizational Separation Processes

Wiedner

Mantere

2018

Administrative Science Quarterly

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“…taxis and limousines as in Rawley & Simcoe, 2010; home building and home financing as in Gartenberg, 2014), broader samples (e.g. Feldman, 2014) or related industries (e.g. Gartenberg, 2014) facing a common shock.…”

Section: Outlining the Essence Of A Mechanisms-based Perspective To Smentioning

confidence: 99%

Redirecting Research Efforts on the Diversification–Performance Linkage: The Search for Synergy

Ahuja

Novelli

2017

ANNALS

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This is the accepted version of the paper.This version of the publication may differ from the final published version. Permanent repository link AcknowledgmentsThe authors would like to thank the editors and reviewers for their very constructive and insightful comments through the review process. Elena Novelli also gratefully acknowledges the financial support of the ESRC Future Research Leaders Scheme (Grant ES/K001388/1) and Cass Business School. Gautam Ahuja would like to thank the University of Michigan for support. 2 AbstractWe review the literature on the diversification-performance (D-P) relationship to a) propose that the time is ripe for a renewed attack on understanding the relationship between diversification and firm performance, and b) outline a new approach to attacking the question.Our paper makes four main contributions. First, through a review of the literature we establish the inherent complexities in the D-P relationship and the methodological challenges confronted by the literature in reaching its current conclusion of a non-linear relationship between diversification and performance. Second, we argue that to better guide managers the literature needs to develop along a complementary path -whereas past research has often focused on answering the big question of does diversification affect firm performance, this second path would focus more on identifying the precise micro-mechanisms through which diversification adds or subtracts value. Third, we outline a new approach to the investigation of this topic, based on (a) identifying the precise underlying mechanisms through which diversification affects performance; (b) identifying performance outcomes that are "proximate" to the mechanism that the researcher is studying, and (c) identifying an appropriate research design that can enable a causal claim. Finally, we outline a set of directions for future research.3

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“…It is possible, then, that divestitures by lowperforming firms may achieve quicker payoffs of improved profitability, while divestitures by high performers may take longer to achieve profitability gains. In parallel, divestitures by higher performers may be less likely to inhibit short term sales growth because they can selectively divest resources with less effect on immediate sales, such as divesting partial rather than full business units Bergh (1998) Accounting (ROA) + Unrelatedness of unit Chang (1996) Accounting (ROA) + Human resource profile similarity Cho and Cohen (1997) Accounting ( Hite and Owers (1983) Market (CAR) + Divestiture to facilitate mergers, to separate diverse units Jain (1985) Market (CAR) + Prior abnormal negative returns Markides (1992) Market (CAR) + Degree of diversification (overdiversification) Mulherin and Boone (2000) Market (CAR) + Size of divestiture Owen, Shi, and Yawson (2010) Market ( Lee and Madhavan (2010) Meta-analysis + Performance measure, transaction format, transaction intent, and firm's resource level Montgomery and Thomas (1988) Accounting (ROA) − Divesting firms' performance improves post-divestitures, but lower than non-divesting firms Bergh (1995) Accounting (ROA) − Un-relatedness of unit Feldman (2014) Accounting (ROS) − Legacy business Wright and Ferris (1997) Market (CAR) − Non-economic pressures Note. ROE = return on equity; ROA = return on assets; ROCE = return on capital employed; ROS = return on sales; CAR = cumulative abnormal returns.…”

Section: Resources Divestitures and Performancementioning

confidence: 99%

Virtuous or vicious cycles? The role of divestitures as a complementary Penrose effect within resource‐based theory

Vidal

Mitchell

2017

Strategic Management Journal

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Research summary: Studies of how divestitures affect firm performance offer mixed results. This paper unpacks relationships between divestitures and subsequent performance, focusing first on the moderating role of prior performance and then on mechanisms through which divestitures by higher-and lower-performing firms affect performance. The study suggests that divestitures can exacerbate weakness and reinforce strength: divestitures by lower performers improve profits but inhibit sales growth and tend to speed the firms' exits as independent actors; by contrast, higher-performing divesters invest in support of existing assets and gain new growth, while avoiding becoming acquisition targets. Most generally, divestitures help reduce constraints to changing a firm's resource base, which we refer to as a complementary Penrose effect.

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Legacy Divestitures: Motives and Implications

Cited by 85 publications

References 89 publications

Cutting the Cord: Mutual Respect, Organizational Autonomy, and Independence in Organizational Separation Processes

Cutting the Cord: Mutual Respect, Organizational Autonomy, and Independence in Organizational Separation Processes

Redirecting Research Efforts on the Diversification–Performance Linkage: The Search for Synergy

Virtuous or vicious cycles? The role of divestitures as a complementary Penrose effect within resource‐based theory

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