The impact of advisor status on corporate divestitures and market reactions

Abstract

Drawing from the resource-based theory, this study examines the circumstances under which financial advisors’ market status may impact divesting firms’ transaction performance (market reaction) and strategic activity (divestiture scale). We argue that divesting firms’ product diversification and performance severity interact with advisor status during critical corporate change. Based on a sample of U.S. divesting firms, we found that highly diversified firms carried out more divestiture activities when using a higher-status advisor.We also found that divesting firms with financial difficulty had more divestiture activities and had better market performance when using a higher-status advisor. This research sheds important light on the contingencies impacting the dual (strategic and financial) role of financial advisors’ market status in firms undertaking critical corporate changes through asset divestiture.