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Industry divestiture waves: How a firm's position influences investor returns
Journal
Academy of Management Journal
ISSN
0001-4273
ISSN-Digital
1948-0989
Type
journal article
Date Issued
2012-12
Author(s)
Wiersema, Margarethe F.
Abstract
Due to the "opaque" nature of divestitures, investors face considerable uncertainty in evaluating divestiture decisions and thus may look to the firm's social context in terms of the pervasiveness of divestiture activity within an industry to infer the quality of the decision. Specifically, we propose that a firm's position in the industry divestiture wave conveys information about whether or not managers are imitating their industry peers, which in turn will influence how investors perceive and assess the quality of the decision and its likely performance consequences. Consistent with this theoretical argument, we find that the relationship between divestiture position and stock market returns exhibits a U-shaped pattern, with divestitures that occur at the peak of an industry divestiture wave generating the lowest stock market returns. We also find that industry characteristics (i.e. munificence) reinforce the effect of position in wave on investor response. Our study is the first to incorporate the role of the firm's social context, in terms of the pervasiveness of an activity, as an important factor that influences how investors perceive and evaluate divestiture decisions.
Language
English
Keywords
divestiture
social context
imitation
industry divestiture waves
HSG Classification
contribution to scientific community
HSG Profile Area
SoM - Responsible Corporate Competitiveness (RoCC)
Refereed
Yes
Publisher
Academy of Management
Publisher place
Briarcliff Manor, NJ
Volume
55
Number
6
Start page
1472
End page
1492
Pages
21
Subject(s)
Division(s)
Eprints ID
212604