2014
DOI: 10.1287/orsc.2013.0873
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Legacy Divestitures: Motives and Implications

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 l… Show more

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Cited by 92 publications
(84 citation statements)
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References 89 publications
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“…This paper enhances our understanding of subtractive change by theorizing links among organizational separation, autonomy, independence, and mutual respect and disrespect, shedding light on the process of subtractive change rather than on its antecedents (e.g., Feldman, 2013) or performance outcomes (e.g., Vidal and Mitchell, 2015). Our process model contributes to the strategic divestiture literature by moving beyond questions of how many and what types of interorganizational ties are beneficial for divesting and divested units (Feldman, 2016) and highlighting that the negotiation and management of ties over time is critical for newly separated units to develop organizational autonomy.…”
Section: Discussionmentioning
confidence: 90%
“…This paper enhances our understanding of subtractive change by theorizing links among organizational separation, autonomy, independence, and mutual respect and disrespect, shedding light on the process of subtractive change rather than on its antecedents (e.g., Feldman, 2013) or performance outcomes (e.g., Vidal and Mitchell, 2015). Our process model contributes to the strategic divestiture literature by moving beyond questions of how many and what types of interorganizational ties are beneficial for divesting and divested units (Feldman, 2016) and highlighting that the negotiation and management of ties over time is critical for newly separated units to develop organizational autonomy.…”
Section: Discussionmentioning
confidence: 90%
“…taxis and limousines as in Rawley & Simcoe, 2010; home building and home financing as in Gartenberg, 2014), broader samples (e.g. Feldman, 2014) or related industries (e.g. Gartenberg, 2014) facing a common shock.…”
Section: Outlining the Essence Of A Mechanisms-based Perspective To Smentioning
confidence: 99%
“…It is possible, then, that divestitures by lowperforming firms may achieve quicker payoffs of improved profitability, while divestitures by high performers may take longer to achieve profitability gains. In parallel, divestitures by higher performers may be less likely to inhibit short term sales growth because they can selectively divest resources with less effect on immediate sales, such as divesting partial rather than full business units Bergh (1998) Accounting (ROA) + Unrelatedness of unit Chang (1996) Accounting (ROA) + Human resource profile similarity Cho and Cohen (1997) Accounting ( Hite and Owers (1983) Market (CAR) + Divestiture to facilitate mergers, to separate diverse units Jain (1985) Market (CAR) + Prior abnormal negative returns Markides (1992) Market (CAR) + Degree of diversification (overdiversification) Mulherin and Boone (2000) Market (CAR) + Size of divestiture Owen, Shi, and Yawson (2010) Market ( Lee and Madhavan (2010) Meta-analysis + Performance measure, transaction format, transaction intent, and firm's resource level Montgomery and Thomas (1988) Accounting (ROA) − Divesting firms' performance improves post-divestitures, but lower than non-divesting firms Bergh (1995) Accounting (ROA) − Un-relatedness of unit Feldman (2014) Accounting (ROS) − Legacy business Wright and Ferris (1997) Market (CAR) − Non-economic pressures Note. ROE = return on equity; ROA = return on assets; ROCE = return on capital employed; ROS = return on sales; CAR = cumulative abnormal returns.…”
Section: Resources Divestitures and Performancementioning
confidence: 99%