Behavioral Cycles Leading to the Divestment of Previous Core Businesses

Abstract

Studies on cognitive-behavioral elements of divestment decisions are scarce. We develop a theory and set of propositions regarding decision-making processes related to divestments of core businesses. We present an historical study of Nokia Corporation’s unique evolution from 1986 to 2013, during which the firm divested its core businesses two times. Our study reveals that in initial major investments made in core businesses, top management may overweight both very long-term and short-term business objectives and may thus underweight medium-term factors. This, in turn, leads to heightened risk for firm death in the medium term and subsequent corporate crisis. In this situation, top management makes divestment decisions, in an expressly risk- or problem-avoiding manner, concerning businesses involving what we term previous ‘failure factors’ of the firm.