Date of Award

1990

Document Type

Dissertation

Degree Name

Doctor of Philosophy (PhD)

First Advisor

Robert Justis

Abstract

This research is an investigation of the influence of contextual factors on a multidivisional firm's decision to divest an entire business unit, and the effects of that divestiture on firm operating performance, market performance, and organizational slack generation and usage. Contextual influences and outcomes are assessed for a sample of 102 U.S. based firms representing 43 different industries, as defined by primary four-digit Standard Industry Classification (SIC). This research drew on prior research in strategic management, finance, and organizational theory to develop an integrated model of firm-level influences on divestiture and determine if those influences can be used to predict divestiture. Four important contextual influences on divestiture are examined: (1) The influences of prior operating performance, (2) prior organizational slack generation and usage patterns, (3) prior market performance, and (4) top manager turnover are examined to determine the combined effect of these influences on divestiture. Additionally, the ex-post divestiture effect on these variables is examined to determine the strategic effects of a unit divestiture. The study's overall results tend to demonstrate that the firm-level factors investigated are not significantly related to divestiture, and these factors could not usefully discriminate between divesting and non-divesting firms. Additionally, the proposed model of the effect of a divestiture on subsequent firm operating performance, market performance, and absorbed and unabsorbed organizational slack was generally not supported. The overall results showed no significant relationship between divestiture and subsequent firm performance and organizational slack relationships. This investigation supports the view that divestiture of a unit in a multidivisional firm is influenced by factors other than the primary contextual variables investigated in this study. Furthermore, the ex-post effect of a divestiture on a divesting firm is generally weak and may not be evident from commonly-used variables measured in a conventional manner.

Pages

192

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