Sell-Offs, Internal Capital Markets, and Long Run Performance: Canadian Evidence

Posted: 8 May 2009 Last revised: 19 Oct 2009

Date Written: May 7, 2009

Abstract

This study investigates the relationship between the level of the excess returns subsequent to sell-offs and changes in the capital allocated through internal capital markets. We measure excess returns by calculating buy-and-hold abnormal (BHAR) returns up to three years after divestitures and test whether changes in value are related to changes in investment efficiency. We use the relative value added by allocation (RVA) as developed by Rajan et al. (2000) to measure the variation in allocational efficiency of the internal capital market.

Our study reveals that on average assets divestitures enable Canadian firms to keep up with the performance of their peers of the same industrial sector during the long-run post divestiture period. A closer look at the results shows that the variation of long-run post divestitures performance among Canadian firms is significantly and positively linked to changes in the allocational efficiency of the internal capital markets. These results suggest that dismantling some parts of the internal capital market does lead to improvements in firm value in the long run.

Keywords: sell-offs, long-run performance, investment efficiency, capital allocation

JEL Classification: G34

Suggested Citation

Francoeur, Claude and Niyubahwe, Alain, Sell-Offs, Internal Capital Markets, and Long Run Performance: Canadian Evidence (May 7, 2009). Available at SSRN: https://ssrn.com/abstract=1401042

Claude Francoeur (Contact Author)

HEC Montréal ( email )

3000, Chemin de la Côte-Sainte-Catherine
Montreal H3T 2A7, Quebec
Canada

Alain Niyubahwe

University of Bujumbura ( email )

Kigamba Avenue, 16, Kinindo
Bujumbura
Burundi

Do you have negative results from your research you’d like to share?

Paper statistics

Abstract Views
617
PlumX Metrics