Adding by Subtracting: The Impact of Performance Feedback on Divestitures
This dissertation examines what drives firms' divestiture activity and how it impacts their performance. Divestitures is defined here as the sale, spin-off or liquidation of assets from an ongoing organization. This dissertation seeks to understand what drives firms' reconfiguration activities via divestitures, and in turn how the divestiture activity impacts the future performance in terms of survival and growth. The dissertation identifies differences in the performance of a firm relative to their prior performance as a driver for divestitures, as well as other financial constraints. Moreover, it shows that, counter-intuitively, divestitures are a tool for growth and helps strong firms continue to grow and helps them avoid becoming a target for acquisitions; whereas in the case of weak firms, divesting does not help them avoid shutting down. This dissertation argues that divestitures are tools firms use to reconfigure and reallocate their financial and managerial resources; in the case of weak firms, divestitures are a mode used primarily to free the necessary monetary funds necessary for firms to address problems and regain competitiveness, whereas for strong firms divestitures are a tool to free scarce managerial resources that can be more efficiently allocated in areas that can provide further growth. This dissertation contributes to our understanding of what drives firms divestitures and corporate strategic decisions in general, and provides evidence that even firms coming from positions of strength can eliminate parts of the organization as a way to grow.
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