Foreign Asset Divestitures by U.S. Firms: An Analysis of Motives and Valuation Consequences

39 Pages Posted: 26 Mar 2006

See all articles by Ike Mathur

Ike Mathur

Southern Illinois University - Department of Finance

Kimberly C. Gleason

American University of Sharjah

Manohar Singh

Willamette University - Atkinson Graduate School of Management

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

Mathur, Ike and Gleason, Kimberly C. and Singh, Manohar, Foreign Asset Divestitures by U.S. Firms: An Analysis of Motives and Valuation Consequences (January 24, 2006). Available at SSRN: https://ssrn.com/abstract=891871 or http://dx.doi.org/10.2139/ssrn.891871

Ike Mathur (Contact Author)

Southern Illinois University - Department of Finance ( email )

Mailcode 4626
Carbondale, IL 62901-4626
United States
618-453-1421 (Phone)
618-453-5626 (Fax)

Kimberly C. Gleason

American University of Sharjah ( email )

P.O. Box 26666
Sharjah
United Arab Emirates

Manohar Singh

Willamette University - Atkinson Graduate School of Management ( email )

900 State Street
Salem, OR 97301
United States

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