Foreign Asset Divestitures by U.S. Firms: An Analysis of Motives and Valuation Consequences
39 Pages Posted: 26 Mar 2006
Date Written: January 24, 2006
Abstract
We test a set of theoretic postulates predicting the choice and value impact of foreign asset divestiture strategies. Following Chen and Gou (2005), we argue that firms may be driven by a variety of motives to divest their foreign assets depending on their pre-divestiture performance, financial structure, possible existence of agency conflict, scale and scope of their business operations, and future growth opportunities. We find support for the financial distress hypothesis only in the case of those financially constrained firms that reduce their leverage in the post-divesting period. Further, we report support for the capital constraint hypothesis for firms that have a record of high capital expenditures in the pre-divestiture period and that are relatively free from agency conflict. Finally, our results support the focus hypothesis for over-diversified firms.
Keywords: Foreign Divestitures, Agency Conflict, M&A
JEL Classification: F23, G31, G34
Suggested Citation: Suggested Citation
Do you have negative results from your research you’d like to share?
Recommended Papers
-
Tobin's Q, Corporate Diversification and Firm Performance
By Larry H.p. Lang and René M. Stulz
-
The Cost of Diversity: The Diversification Discount and Inefficient Investment
By Raghuram G. Rajan, Henri Servaes, ...
-
The Cost of Diversity: The Diversification Discount and Inefficient Investment
By Raghuram G. Rajan, Henri Servaes, ...
-
Cash Flow and Investment: Evidence from Internal Capital Markets
-
The Dark Side of Internal Capital Markets: Divisional Rent-Seeking and Inefficient Investment
-
Internal Capital Markets and the Competition for Corporate Resources
-
Explaining the Diversification Discount
By José Manuel Campa and Simi Kedia
-
Explaining the Diversification Discount
By José Manuel Campa and Simi Kedia