Divisional sell‐off: A hazard function analysis

Abstract

AbstractFor a sample of roughly 450 companies, hazard function estimation is used to determine the environmental and organizational variables precipitating the ‘sell‐off’ of divisional units. The sample focuses on 285 ‘lines of business’ fully divested between 1975 and 1981, comparing them to 2157 retained lines. The most powerful sell‐off predictor was prior profitability at the line of business level; the lower profits, the higher the sell‐off probability. Also, divestiture was more likely, the lower company‐wide profitability, the lower a line's market share, the lower the line's R&D/sales ratio, and in the aftermath of a company chief executive officer change. Units previously acquired in conglomerate mergers were more likely to be sold off than original units. On the buyer's side of the sell‐off market, large companies acquiring other firms' divested units tended to improve the units' profit performance, but not enough, on average, to realize a normal return on their investments.