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Share Holder Wealth Effects of Corporate Selloffs: Impact of Growth Opportunities, Economic Cycle and Bargaining Power
Author(s) -
Alexandrou George,
Sudarsanam Sudi
Publication year - 2001
Publication title -
european financial management
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.311
H-Index - 64
eISSN - 1468-036X
pISSN - 1354-7798
DOI - 10.1111/1468-036x.00154
Subject(s) - bargaining power , shareholder , information asymmetry , boom , economics , recession , divestment , monetary economics , business cycle , empirical evidence , wealth effect , business , microeconomics , finance , corporate governance , macroeconomics , monetary policy , philosophy , epistemology , environmental engineering , engineering
Most of the existing empirical evidence on corporate selloffs documents significant wealth gains for the seller’s shareholders. We investigate the sources of these wealth gains by examining the impact of business and financial strategy, the economic environment during selloff, and the bargaining advantages of the seller including information asymmetry. We find evidence that sellers with growth opportunities and financially strong sellers enjoy higher returns. Selloffs during recessions generate larger wealth gains than those during economic boom. Information asymmetry due to the buyer’s location being different from the purchased division’s gives the seller a bargaining advantage leading to larger wealth gains. Relatively large divestments are more beneficial to seller shareholders than small ones. The study highlights the importance of both firm specific and environmental factors in explaining the wealth gains associated with corporate selloffs.