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The Impact of Divestment on Firm Performance: Empirical Evidence from a Panel of UK Companies
Author(s) -
Haynes Michelle,
Thompson Steve,
Wright Mike
Publication year - 2002
Publication title -
the journal of industrial economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.93
H-Index - 77
eISSN - 1467-6451
pISSN - 0022-1821
DOI - 10.1111/1467-6451.00173
Subject(s) - divestment , profitability index , business , scope (computer science) , panel data , corporate governance , vendor , industrial organization , economics , finance , marketing , computer science , econometrics , programming language
It has widely been suggested that during the 1980s many diversified firms narrowed the scope of their activities by refocusing on core businesses, primarily through divestment activity. This study examines the impact of divestment on firm performance, using an unbalanced panel of 132 UK quoted companies over the period 1985 to 1993. The results suggest that divestment has a positive, significant and substantial effect in raising the profitability of the vendor company. We find limited support for the view that the benefit from divestment is greater for larger and/or more diversified firms and firms operating with weak governance arrangements.