An Evolutionary Perspective on Diversification and Corporate Restructuring: Entry, Exit, and Economic Performance During 1981-89

Chang, Sea Jin

doi:10.1002/(sici)1097-0266(199610)17:8<587::aid-smj834>3.0.co;2-1

Cited by 316 publications

(360 citation statements)

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“…Recently, theorists have begun to examine intraorganizational and inter-organizational processes that enable change as well as inhibit it (Chang, 1996). Galunic and Eisenhardt (1996), for instance, examine means by which firms undertake substantive changes to intra-divisional charters, emphasizing how the growth of new core businesses affects the decline of established charters.…”

Section: Discussionmentioning

confidence: 99%

“…A substantial stream of research examines the role of top management turnover in organizational change (e.g., Romanelli and Tushman, 1994;Harris and Helfat, 1997). Several recent studies of inter-organizational relationships, in turn, emphasize acquisition of individual (e.g., Chang, 1996;Liebeskind et al, 1996) and organizational capabilities (e.g., Mitchell and Singh, 1996;Martin, Swaminathan, and Mitchell, 1998) in facilitating organizational change. Kogut and Zander (1992) and Mitchell (1994) argue that acquisitions help firms to synthesize and acquire new knowledge.…”

Section: Discussionmentioning

confidence: 99%

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Asset divestiture following horizontal acquisitions: a dynamic view

Capron¹,

Mitchell²,

Swaminathan³

2001

Strategic Management Journal

327

250

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Business acquisition, resource redeployment, and asset divestiture are elements of a dynamic process in which firms change their businesses by recombining internal and external resources. Analyzing 253 horizontal acquisitions, we show that post-acquisition resource redeployment leads to asset divestiture from the business that receives the redeployed resources, but not from the business that contributes the new resources. Consistent with scale economies rationales, we find that strategic similarity also leads to greater asset divestiture from the target firms. Many theoretical perspectives are skeptical about the positive rationale for acquisitions and many of these believe that asset divestiture is evidence of acquisition failure. Our arguments and analysis help refine the accepted wisdom. In particular, the pattern of resource redeployment and asset divestiture in our analysis suggests that acquisitions provide a means of reconfiguring the structure of resources within firms and that asset divestiture is a logical consequence of this reconfiguration process. CopyrightThis study examines the causes of asset divestiture following horizontal acquisitions. Asset divestiture is the partial or complete sale or disposal of physical and organizational assets, shut down of facilities, and reduction of work forces of target or acquirer businesses. Post-acquisition asset divestiture has long represented a substantial fraction of M&A activity (Gilmour, 1973). In the 1980s and early 1990s, about 35 to 45 percent of reported M&As were divestitures of previously-acquired units by other firms (Weston, 1994). Similarly, Porter (1987) and Ravenscraft and Scherer (1987) report a high incidence of post-acquisition divestiture. Scholars often argue that the high rate of post-acquisition divestiture is evidence of acquisition failure, but this conclusion has two key limits. First, prior research emphasizes divestiture of target business assets, with little attention to postacquisition divestiture of the assets of acquiring businesses. Second, and perhaps most critically, the research under-emphasizes the positive side of post-acquisition divestiture as part of the dynamic process of business change.Our research tests a more positive view of asset divestiture following horizontal acquisitions. The study departs from previous research in two ways. First, we develop the idea that divestiture is often part of the reconfiguration of the merging firms. Second, we examine divestiture of both acquirer and target assets. In this approach, we emphasize partial divestiture of target and acquiring business assets following horizontal acquisitions, as firms retain and integrate some elements of target businesses within their existing businesses. Our arguments contrast with the negative perspectives on horizontal acquisitions and post-acquisition divestitures that have dominated the traditional anti-trust literature as well as some managerial critiques. 818L. Capron, W. Mitchell and A. Swaminathan This work extends recent research that pro...

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Section: Discussionmentioning

confidence: 99%

Section: Discussionmentioning

confidence: 99%

Asset divestiture following horizontal acquisitions: a dynamic view

Capron¹,

Mitchell²,

Swaminathan³

2001

Strategic Management Journal

327

250

View full text Add to dashboard Cite

show abstract

“…To the extent that firms grow and expand by building on their routines in a path-dependent manner, legacy businesses should exhibit deep and extensive interdependencies with their remaining operations (LeonardBarton 1992, Teece et al 1994). This is especially likely to be true when a firm diversifies to leverage the routines embedded in its legacy business in related areas of its portfolio (Penrose 1959, Chang 1996, Capron et al 1998, Helfat and Eisenhardt 2004, Levinthal and Wu 2010.…”

Section: Introductionmentioning

confidence: 99%

Legacy Divestitures: Motives and Implications

Feldman

2014

Organization Science

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This paper investigates "legacy divestitures," the sale or spinoff of a company's original, or "legacy," business. The central tension considered in this work is that the historical presence of a firm's legacy business should simultaneously make that unit very interdependent with the company's remaining operations and make the firm's managers highly likely to take those same interdependencies for granted. Consistent with these predictions, the post-divestiture operating performance of firms that divest their legacy businesses falls short of that of firms that retain comparable legacy units, especially when the divested unit operates in the same industry as others of the divesting firm's businesses. Newer chief executive officers (CEOs) are more likely to undertake legacy divestitures than their longer-tenured peers, and the most recently appointed CEOs undertake the most costly legacy divestitures. In summary, this paper provides insights into how historical interdependencies create value in diversified firms, as well as the decision-making processes that managers follow in overseeing these companies. Abstract This paper investigates "legacy divestitures," the sale or spinoff of a company's original, or "legacy" business. The central tension considered in this work is that the historical presence of a firm's legacy business should simultaneously make that unit very interdependent with the company's remaining operations and make the firm's managers highly likely to take those same interdependencies for granted. Consistent with these predictions, the post-divestiture operating performance of firms that divest their legacy businesses falls short of that of firms that retain comparable legacy units, especially when the divested unit operates in the same industry as others of the divesting firm's businesses. Newer CEOs are more likely to undertake legacy divestitures than their longer-tenured peers, and the most recently-appointed CEOs undertake the most costly legacy divestitures. In sum, this paper provides insights into how historical interdependencies create value in diversified firms, as well as the decision-making processes managers follow in overseeing these companies.

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“…Unmet expectations regarding sales or profit, market share, and disappointing profit and demand growth rates at the business unit level as well as the relatively low size of a unit in question also play a key role for the decision to divest a business (Chang, 1996). Divested units are likely to have been incorporated into the selling firm through acquisition rather than through internal development.…”

Section: Performancementioning

confidence: 99%

Thirty Years After Michael E. Porter: What Do We Know About Business Exit?

Decker

Mellewigt

2007

AMP

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Executive OverviewAlthough a business exit is an important corporate change initiative, the buyer's side seems to be more appealing to management researchers than the seller's because acquisitions imply growth, i.e., success. Yet from an optimistic viewpoint, business exit can effectively create value for the selling company. In this paper we attempt to bring the relevance of the seller's side back into our consciousness by asking: What do we know about business exit? We start our exploration with Porter (1976), focusing on literature that investigates the antecedents of, barriers to, and outcomes of business exit. We also include studies from related fields such as finance and economics. 1 Through this research we determine three clusters of findings: factors promoting business exit, exit barriers, and exit outcomes. Overall, it is the intention of this paper to highlight the importance of business exit for research and practice. Knowing what we know about business exits and their high financial value we should bear in mind that exit need not mean failure but a new beginning for a corporation.B usiness exit is an asset restructuring activity involving a diversified firm's divestiture of one of its businesses, such as Intel's abandonment of its DRAM business (Burgelman, 1996). Interest in this topic can be traced back to publications that represent milestones in economic research such as Bain (1956), who established the concept of barriers to entry, Caves ' (1964) analysis of the American industry, and the seminal article on exit barriers by Porter published in California Management Review in 1976, which helped raise the interest in business exit among a broad audience. Data from the U.S. illustrate that business exit continues to be relevant (cf. Figure 1). In the U.S., business services, real estate, and software were the most active divesting industries in 2005. A recent study by the consulting company Accenture highlights the growing relevance of business exits for years to come and predicts that " [f]or the next years, many companies will give far more thought to divestitures than they did in the late 1990s" (Anslinger, Jenk, & Chanmugam, 2003).Although a business exit is an important corporate change initiative, the buyer's side seems to be more appealing to management researchers than the seller's because acquisitions imply growth, i.e., success. This preference for the "success" side can be seen at the industry level as well. Managers, for example, may resist business exit because it is afflicted with the stigma of failure and is often seen as a result of poor corporate management. The reluctance of managers to admit that their organization or at least parts of it are in trouble is evidence of their substantial personal preoccupation with growth and their large personal costs in case of exit (Gilson, 1989). Yet from an optimistic point of view, business exit can effectively create value for the selling company. Indeed, the stigma certainly wasn't a factor for former GE CEO Jack Welch. Under his leadersh...

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An Evolutionary Perspective on Diversification and Corporate Restructuring: Entry, Exit, and Economic Performance During 1981-89

Cited by 316 publications

References 20 publications

Asset divestiture following horizontal acquisitions: a dynamic view

Asset divestiture following horizontal acquisitions: a dynamic view

Legacy Divestitures: Motives and Implications

Thirty Years After Michael E. Porter: What Do We Know About Business Exit?

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