Divestiture, Experience, and Strategic Renewal

Abstract

This paper examines the benefits of learning and experience gained through corporate divestitures. We find that experienced (i.e., serial) divestors are more likely to sell non-core, geographically distant or underperforming units. They are also more likely to time divestitures during industry merger waves, periods associated with higher firm valuations. Experienced divestors also earn higher returns on divestiture announcement, and have stronger operating performance post-divestiture. Furthermore, experienced divestors tend to reinvest sale proceeds in expansion programs using acquisitions, especially value-creative ones. These findings suggest that divestiture experience can significantly improve divestiture performance. We take steps to mitigate econometric and sample selection concerns.