Little theoretical attention has been given to divestiture; that is, to the question of why two firms that face similar environments make different selling decisions and reap different performance outcomes from a sale. This article proposes a framework of divestiture built around the core concept of seller responsiveness, which is defined as the readiness of the management at the selling firm to respond to the need to divest. The data show how divestiture context, management characteristics, and governance attributes influence seller responsiveness and, in turn, the price the divesting firm receives. Finally, the framework’s implications for research and practice are discussed.
Get full access to this article
View all access options for this article.
References
1.
Abelson, R. P., & Black, J. B.1986. Introduction. In J. A. Galambos, R. P. Ableson, & J. B. Black (Eds.), Knowledge Structures:1–18. Hillsdale, NJ: Erlbaum.
Aguilar, F. J.1967. Scanning the business environment. New York: Macmillan.
4.
Akerlof, G.1970. The market for “lemons:” Quality, uncertainty, and the market mechanism. Quarterly Journal of Economics, 84 (3): 488–500.
5.
Ball, S. B., Bazerman, M. H., & Carroll, J. S.1991. An evaluation of learning in the bilateral winner’s curse. Organizational Behavior and Human Decision Processes, 48 (1): 1–22.
6.
Baysinger, B., & Hoskisson, R. E.1989. Diversification strategy and R&D intensity in multiproduct firms. Academy of Management Journal, 32 (2): 310–332.
7.
Bergh, D. D.1995. Size and relatedness of units sold: An agency theory and resource-based perspective. Strategic Management Journal, 16: 221–239.
8.
Bethel, J. E., & Liebeskind, J.1993. The effects of ownership structure on corporate restructuring. Strategic Management Journal, 14 (Special Issue): 15–31.
9.
Boot, A. W. A.1992. Why hang on to losers? Divestitures and takeovers. Journal of Finance, 47 (4): 1401–1423.
10.
Boyd, B. K.1994. Board control and CEO compensation. Strategic Management Journal, 15: 335–344.
11.
Brockner, J., & Rubin, J.1985. Entrapment in escalating commitments. New York: Springer-Verlag.
12.
Brockner, J., Grover, S., Reed, T., DeWitt, R., & O’Malley, C.1987. Survivor’s reactions to layoffs: We get by with a little help from our friends. Administrative Science Quarterly, 32 (4): 562–541.
13.
Brockner, J., Tyler, T. R., & Cooper-Schneider, R.1992. The influence of prior commitment to an institution on reactions to perceived fairness: The higher they are, the harder they fall. Administrative Science Quarterly, 37 (2): 241–261.
14.
Buchholtz, A. K., & Ribbens, B.1994. Role of chief executive officers in takeover resistance: Effects of CEO incentives and individual characteristics. Academy of Management Journal, 37 (3): 554–579.
15.
Buono, A. F., Bowditch, J. L., & Lewis, J. W. 1985. The human side of organizational transformation: A longitudinal study of a bank merger. Presented at Academy of Management, San Diego, CA, August 11–14.
16.
Byrne, H. S.1990. Cooper Industries, Inc.: It scores big earnings gains through chain of acquisitions. Barron’s, 70: 39–40.
17.
Cameron, K., Whetton, D., & Kim, M.1987. Organizational dysfunctions of decline. Academy of Management Journal, 30 (1): 126–138.
18.
Cascio, W.1993. Downsizing: What do we know? What have we learned?Academy of Management Executive, 7 (1): 95–104.
19.
Caves, R. E.1977. From entry barriers to mobility barriers: Conjectural decisions and contrived deterrence to new competition. Quarterly Journal of Economics, 91: 241–262.
20.
Chatterjee, S., Lubatkin, M., Schweiger, D., & Weber, Y.1992. Cultural differences and shareholder value in related mergers: Linking equity and human capital. Strategic Management Journal, 13 (5): 319–334.
21.
Ciscel, D., & Carroll, T. M.1980. The determinants of executive salaries: An econometric survey. Review of Economics and Statistics, 62: 7–13.
22.
David, K.1977. Epilogue: What shall we mean by changing identities. In K. David (Ed.), World Anthropology: Proceedings of the Ninth International Congress of Anthropological and Ethnological Sciences. The Hague: Mouton.
23.
Dial, J., & Murphy, K. J.1995. Incentives, downsizing, and value creation at General Dynamics. Journal of Financial Economics, 37 (3): 261–314.
24.
Donaldson, G.1990. Voluntary restructuring: The case of General Mills. Journal of Financial Economics, 3: 53–82.
25.
Duhaime, I. M. 1981. Influences on the divestment decisions of large diversified firms. Doctoral Dissertation, The University of Pittsburgh.
26.
Duhaime, I. M., & Grant, J. H.1984. Factors influencing divestment decision making: Evidence from a field study. Strategic Management Journal, 5: 301–318.
27.
Duhaime, I. M., & Schwenk1985. Conjectures on cognitive simplification in acquisition and divestment decision making. Academy of Management Review10 (2): 287–295.
28.
Fabrikant, G.1992. General Cinema’s big bet on Harcourt Brace’s revival. The New York Times. January 6: D1-D1.
29.
Finkelstein, S.1992. Power in top management teams: Dimensions, measurement, and validation. Academy of Management Journal, 35: 505–553.
30.
Finkelstein, S., & Hambrick, D. C.1988. Chief executive compensation: A synthesis and reconciliation. Strategic Management Journal, 9: 543–558.
31.
Finkelstein, S., & Hambrick, D. C.1990. Top-management-team tenure and organizational outcomes: The moderating role of managerial discretion. Administrative Science Quarterly, 35: 484–503.
32.
Fox, F. V., & Staw, B. M.1979. The trapped administrator: Effects of a job insecurity and policy resistance upon commitment to a course of action. Administrative Science Quarterly, 24: 449–471.
33.
Frederickson, J., Hambrick, D., & Baumrin, S.1988. A model of CEO dismissal. Academy of Management Review, 13: 255–270.
34.
Gabarro, J. J.1987. The dynamics of taking charge. Boston: Harvard Business School Press.
35.
Ginsberg, A., & Abrahamson, E.1991. Champions of change and strategic shifts: The role of internal and external change advocates. Journal of Management Studies, 28 (2): 173–190.
36.
Gordon, G., & Rosen, N.1981. Critical factors in leadership succession. Organizational Behavior and Human Decision Processes, 27: 227–254.
37.
Hambrick, D., & Cannella, A.1993. Relative standing: A framework for understanding departures of acquired executives. Academy of Management Journal, 36 (4): 733–742.
38.
Hambrick, D., & D’Aveni, R.1988. Large corporate failures as downward spirals. Administrative Science Quarterly, 33 (1): 1–23.
39.
Hambrick, D., & Fukutomi, G.1991. The seasons of a CEO’s tenure. Academy of Management Review, 16 (4): 719–742.
40.
Hambrick, D., & Mason, P.1984. Upper echelons: The organization as a reflection of its top managers. Academy of Management Review, 9 (2): 193–206.
41.
Hamilton, R., & Chow, Y.1993. Why managers divest-Evidence from New Zealand’s largest companies. Strategic Management Journal, 14 (6): 479–484.
42.
Hannan, M. & Freeman, J.1989. Organizational ecology. Cambridge, MA: Harvard University Press.
43.
Harrigan1981. Deterrents to divestiture. Academy of Management Journal, 24 (2): 306–323.
44.
Harrison, J. R.1987. The strategic use of corporate board committees. California Management Review, 30 (1): 109–125.
45.
Haspeslagh, P., & Jemison, D.1991. Managing acquisitions: Creating corporate value through corporate renewal. New York: Free Press.
46.
Hayward, M., & Hambrick, D.1997. Explaining the premium paid for large acquisitions: Evidence of CEO hubris. Administrative Science Quarterly, 42 (1): 103–127.
47.
Hearth, D., & Zaima, J. K.1984. Voluntary corporate divestitures and value. Financial Management, Spring: 10–16.
48.
Hendricks, K., Porter, R. H., & Boudreau, B.1987. Information returns and bidding behavior in OCS Auctions: 1954–1969. Journal of Industrial Economics, 35: 517–542.
49.
Herman, E. S., & Lowenstein, L.1988. The efficiency effects of hostile takeovers. In J. Coffee, L. Lowenstein, & S. Rose-Ackerman (Eds.), Knights, raiders, and targets: The impact of the hostile takeover:211–240. New York: Oxford University Press.
50.
Hill, C., & Phan, P.1991. CEO tenure as a determinant of CEO pay. Academy of Management Journal, 34: 707–717.
51.
Hitt, M., Hoskisson, R., & Harrison, J.1991. Strategic competitiveness in the 1990s: Challenges and opportunities for U.S. executives. Academy of Management Executive, 5 (2): 7–22.
52.
Hopkins, D. H.1991. Acquisition and divestiture as a response to competitive position and market structure. Journal of Management Studies, 28 (6): 665–677.
53.
Hoskisson, R. E., & Hitt, M. A.1994. Downscoping: How to tame the diversified firm. New York: Oxford University Press.
54.
Hoskisson, R. E., & Johnson, R. A.1992. Corporate refocusing and strategic change: The effect on diversification strategy and R&D intensity. 13: 625–634.
55.
Hoskisson, R. E., Johnson, R. A., & Moesel, D. D.1994. Corporate divestiture intensity in restructuring firms: Effects of governance, strategy, and performance. Academy of Management Journal, 37 (5): 1207–1251.
56.
Jackson, S. E., Brett, J. F., Sessa, V. I., Cooper, D. M., Julin, J. A., & Peyronnin, K.1991. Some differences make a difference: Individual dissimilarity and group heterogeneity as correlates of recruitment, promotions, and turnover. Journal of Applied Psychology, 76: 675–689.
57.
Janis, I., & Mann, L.1977. Decision making: A psychological analysis of conflict, choice, and commitment. New York: Free Press.
58.
Jemison, D. B., & Sitkin, S. B.1986. Corporate acquisitions: A process perspective. Academy of Management Review, 11: 145–164.
59.
Johnson, R. A., Hoskisson, R. E., & Hitt, M. A.1993. Board of director involvement in restructuring: The effects of board versus managerial controls and characteristics. Strategic Management Journal, 14: 33–50.
60.
Kesner, I. F., Shapiro, D. L., & Sharma, A.1994. Brokering mergers: An agency theory perspective on the role of representatives. Academy of Management Journal, 37 (3): 703–721.
61.
Klein, A.1986. The timing and substance of divestiture announcements: Individual, simultaneous and cumulative effects. Journal of Finance, 41 (3): 685–697.
62.
Klein, B., Crawford, R. G., & Alchian, A. A.1978. Vertical integration, appropriable rents, and the competitive contracting process. Journal of Law and Economics, 21 (2): 297–326.
63.
Kosnik, R. D.1987. Greenmail: A study of board performance in corporate governance. Administrative Science Quarterly, 32: 163–185.
64.
Lambert, R. A., Larcker, D. F., & Weigelt, K.1991. How sensitive is executive compensation to organizational size?Strategic Management Journal, 12: 395–402.
65.
Larsson, R.1993. Case survey methodology: Qualitative analysis of patterns across case studies. Academy of Management Journal, 36: 1515–1546.
66.
Larsson, R., & Finkelstein, S.1998. Integrating strategic, organizational, and human resource perspectives on mergers and acquisitions: A case survey of synergy realization. Organization Science, 10 (1): 1–26.
67.
Lorange, P., & Murphy, D.1984. Considerations in implementing strategic control. Journal of Business Strategy, 4 (4): 27–35.
68.
Lubatkin, M., Calori, R., Very, P., & Veiga, J.1998. Managing mergers across borders: A two nation test of nationally bound administrative heritage. Organization Science, 9 (6): 670–684.
69.
Lubatkin, M., Schweiger, D., & Weber, Y.1998. Top management turnover in related M&As: An additional test of the theory of relative standing. Journal of Management, 25 (1): 55–73.
70.
Markides, C. C.1992. Consequences of corporate refocusing: Ex ante evidence. Academy of Management Journal, 35: 398–412.
71.
McGuire, J. W., Chiu, J. S., & Elbing, A. O.1962. Executive incomes, sales, and profits. American Economic Review, 60: 753–761.
72.
McIntyre, S.1982. Obstacles to corporate innovation. Business Horizons, 25 (1): 23–28.
73.
Miller, C., & Komorita, S.1987. Coalition formation in organizations: From the laboratory to the real world. In M. Bazerman, B. Sheppard, & R. Lewicki (Eds.), Research on negotiations in organizations:43–61. Greenwich, CT: JAI Press.
74.
Miller, D.1977. Common syndromes of business failure. Business Horizons, 20 (6): 43–53.
75.
Miller, D.1990. The Icarus Paradox: How exceptional companies bring about their own downfall. New York: Harper Business.
76.
Miller, D.1991. Stale in the saddle: CEO tenure and the match between organization and environment. Management Science, 37: 34–52.
77.
Mintzberg, H.1987. Crafting strategy. Harvard Business Review, 65 (4): 66–75.
78.
Montgomery, C. A., Thomas, A. R., & Kamath, R.1984. Divestiture market valuation and strategy. Strategic Management Journal, 27: 830–840.
79.
Nahavandi, A., & Malekzadeh, A.1988. Acculturation in mergers and acquisition. Academy of Management Review, 13 (1): 79–90.
80.
Norman, J. R.1994. Fallen angel. Forbes, 153: 48-48.
81.
O’Reilly, C. A. III, Chatman, J., & Caldwell, D. F.1991. People and organizational culture: A profile comparison approach to assessing person-organization fit. Academy of Management Journal, 34 (3): 487–516.
82.
Pablo, A. L.1994. Determinants of acquisition integration level: A decision-making approach. Academy of Management Journal, 37 (4): 803–836.
83.
Pablo, A. L., Sitkin, S. B., & Jemison, D. B.1996. Acquisition decision-making processes: The central role of risk. Journal of Management, 22 (5): 723–746.
84.
Pashley, M., & Phillipatos, G.1993. Have voluntary divestitures of U.S. Corporations increased corporate wealth? Empirical evidence from the life cycle. Applied Financial Economics, 3 (1): 39–49.
85.
Pfeffer, J., & Salancik, G. R.1978. The external control of organizations: A resource dependence perspective. New York: Harper & Row.
86.
Porter, M.1987. From competitive advantage to corporate strategy. Harvard Business Review, May–June: 43–59.
87.
Porter, M. E.1976. Please note location of nearest exit: Exit barriers and strategic and organizational planning. California Management Review, 19 (2): 21–33.
88.
Porter, M. E.1980. Competitive strategy. New York: Free Press.
89.
Porter, M. E.1985. Competitive advantage. New York: Free Press.
90.
Prahalad, C. K., & Hamel, G.1990. The core competence of the corporation. Harvard Business Review, 68 (3): 81–92.
91.
Ravenscraft, D. J., & Scherer, F. M.1987. Mergers, sell-offs and economic efficiency. Washington, DC: The Brookings Institution.
92.
Rich, J. T., & Larson, J. A.1984. Why some long term incentives fail. Compensation Review, 13 (4): 16–37.
93.
Roll, R.1986. The hubris hypothesis of corporate takeovers. Journal of Business, 59: 197–216.
94.
Roll, R.1988. Takeover activity and shareholder wealth. In J. Coffee, L. Lowenstein, & S. Rose-Ackerman (Eds.), Knights, raiders, and targets: The impact of the hostile takeover:241–252. New York: Oxford University Press.
95.
Rosenfeld, J. D.1984. Additional evidence on the relation between divestiture announcements and shareholder wealth. Journal of Finance, 39 (5): 1437–1448.
96.
Ross, J., & Staw, B. M.1993. Organizational escalation and exit: Lessons from the Shoreham nuclear power plant. Academy of Management Journal, 36 (4): 701–732.
97.
Salancik, G. R., & Meindl, J. R.1984. Corporate attributions as strategic illusions of management control. Administrative Science Quarterly, 29: 238–254.
98.
Sales, A., & Mirvis, P.1984. When cultures collide: Issues of acquisition. In J. R. Kimperbly & R. E. Quinn (Eds.), Managing Organizational Transition. Homewood, IL: Irwin.
99.
Schneider, B. W.1987. The people make the place. Personnel Psychology, 40: 437–453.
100.
Schweiger, D., & Weber, Y.1989. Strategies for managing human resources during mergers and acquisitions: An empirical investigation. Human Resource Planning, 12 (2): 69–86.
101.
Sikora, M.1990. The M&A bonanza of the 1980s...andits legacy. Mergers and Acquisitions, 24 (5): 90–95.
102.
Simon, H. A.1957. Compensation of executives. Sociometry, 20: 32–35.
103.
Sitkin, S. B.1992. Learning through failure: The strategy of small losses. In B. M. Staw & L. L. Cummings (Eds.), Research in Organizational Behavior:231–266. Greenwich, CT: JAI Press.
104.
Smart, D. L., & Hitt, M. A.1994. A mid-range theory regarding the antecedents of restructuring programs. In P. Shrivastava, A. S. Huff, & J. E. Dutton (Eds.), Advances in Strategic Management:159–186. Greenwich, CT: JAI Press.
105.
Starbuck, W., Greve, A., & Hedberg, B.1978. Responding to crises. Journal of Business Administration, 9: 111–137.
Staw, B. M.1976. Knee-deep in the Big Muddy: A study of escalating commitment into a chosen course of action. Organizational Behavior and Human Performance, 16: 27–44.
108.
Stevens, J., Beyer, J., & Trice, H.1978. Assessing personal, role, and organizational predictors of managerial commitment. Academy of Management Journal, 21: 380–396.
109.
Taylor, M.1988. Divesting business units: Making the decision and making it work. Lexington, MA: Lexington Books.
110.
Thaler, R. H.1992. The winner’s curse: Paradoxes and anomalies of economic life. New York: Free Press.
111.
Tversky, A., & Kahneman, D.1981. The framing of decisions and the psychology of science. Science, 211 (30): 453–458.
112.
Very, P., Lubatkin, M., Calori, R., & Veiga, J.1997. Relative standing and the performance of recently acquired European firms. Strategic Management Journal, 18 (8): 593–614.
113.
Walsh, J.1988. Top management turnover following mergers and acquisitions. Strategic Management Journal, 9: 173–183.
114.
Walsh, J. P., & Seward, J. K.1990. On the efficiency of internal and external corporate control mechanisms. Academy of Management Review, 15 (3): 421–458.
115.
Weisbach, M.1988. Outside directors and CEO turnover. Journal of Financial Economics, 20: 431–460.
116.
Weitzel, W., & Jonsson, E.1989. Decline in organizations: A literature integration and extension. Administrative Science Quarterly, 34: 91–109.
117.
Wiersema, M., & Bantel, K.1992. Top management team demography and corporate strategic change. Academy of Management Journal, 35: 91–121.
118.
Zammuto, R.1982. Assessing organizational effectiveness: Systems change, adaptation and strategy. Albany, NY: State University of New York Press.
