Is There a Dark Side to Divestitures? Employee Commitment after Corporate Divestitures

Abstract

Previous empirical research on divestitures has mainly been interested in the financial perspective, which led to a one-sided, predominantly positive framing. Challenging these findings, we examine divestitures from the employees’ psychological perspective and analyze the relationship between divestiture intensity and organizational commitment as well as the moderating effect of employees’ culture-related preference for reciprocity. Based on unique, internal firm data from a highly diversified European MNE, which comprises 2,300,000 employee-year observations, we find that employees who remain in the firm respond to higher divestiture intensity by lowering their commitment, expressed by discontinued investments in the firm’s share ownership. We also find that employees with higher preferences for positive reciprocity are relatively more likely to decrease their commitment in response to divestitures. Our results hold important implications for academics and practitioners.