Divestiture announcements in Australia : causes and consequences

This research examines 663 divestiture announcements around australia from 1987 to 1997. Such Australian data allow independent tests of various hypotheses documented in comparable studies on U.S. data. Valuation effects in reaction to such announcements are persistently, however weakly, positive for both the divesting parents and also the acquiring firms. Various causes and motives to divest are researched. Empirical results support that high leverage, poor prior performance, low profitability, and increasing geographic focus are usually causes for management to divest, and guide to positive market reaction. Findings are commensurate with the two financial distress and the bankruptcy avoidance hypotheses documented in the corporate restructuring literature. For long-term outcomes, empirical evidence implies that divestitures present viable and prevalent tools for firms to restructure in reaction with a decline in operating performance. Firms that adopt divestitures following many years of deterioration, for instance increasing leverage, decreasing performance and decreasing profitability, could experience some kind of turnarounds in the years pursuing the operational actions. Are you aware that acquiring firms, market reaction suggests that acquiring for synergistic gains, both geographically and industry-wise, are usually more justifiable acquisitions compared to those obtaining a target unlikely to yield synergistic gains. In several ways, these studies reassures the potency of divestitures along with the great need of business similarity and geographic proximity in corporate restructuring considerations.

Contents: Divestiture announcements in Australia : causes and consequences

Chapter 1: Introduction
Chapter 2: A Survey of Divestment Causes, Decisions, and Consequences
2.1 Asset Sales (sell-offs)
2.2 Valuation Effects in Response to Sell-offs
2.3 Hypotheses Behind Sell-offs
2.3.1 Diversification Reversal – The Effects of Diversification on Firm Value
2.3.2 Diversification Reversal – The Principles
2.3.3 Diversification Reversal – The Barriers and Costs
2.3.4 Hostile Bust-up Takeovers, Voluntary Restructuring, and Previous Acquisitions
2.3.5 International Diversification and Geographic Refocus
2.3.6 Financial Distress and Leverage-related Motives
2.3.7 Divesting Underperforming Assets
2.3.8 Agency Costs of Managerial Discretion
2.3.9 Solutions to Agency Costs
2.3.10 Profitability of Sell-offs
2.3.11 Non-voluntary Reasons
2.4 Other Forms of Divestiture
2.4.1 Spin-offs
2.4.2 Equity Carve-outs and Seasoned Equity Offerings
2.4.3 Management Buyouts
2.4.4 Others
2.5 Long-term Performance Improvement Following Sell-offs
2.6 Acquiring Firms
2.6.1 Synergistic Gains Between Two Parties
Chapter 3: The Study: Data, Methodology and Hypotheses
3.1 Data
3.2 Abnormal Returns
3.3 Variables
3.4 Research Questions and Hypotheses
Chapter 4: Divestiture Announcements and Valuation Effects
4.1 The Cumulative Abnormal Returns of the Parent Companies
4.1.1 Figures and Tests
4.1.2 The Different Samples and Discussions
4.2 Preliminary Univariate Analyses
4.2.1 Leverage – Different Definitions
4.2.2 Poor Prior Performance
4.2.3 Negative Synergy and the Dissimilarity of the Parent and Target
4.2.4 Other Hypotheses
Chapter 5: Cross-sectional Regression Analyses of Abnormal Returns
5.1 Specific Models
5.1.1 Leverage and Operating Performance
5.1.2 Refocusing
5.1.3 Information Revelation
5.1.4 Transaction Type
5.2 Full Models
Chapter 6: Corporate Restructuring for Operating Performance Turnaround
6.1 Deterioration Year
6.2 Overview of Three Samples with Deteriorating Performance
6.3 Timing and Effectiveness of Operational Actions
6.3.1 Comparisons of Different Time Spans
6.3.2 Deterioration and Improvement or Pause in Deterioration
6.4 Logit Regressions – Probabilities of Refocusing Geographically and Recording a Positive Net Profit
6.4.1 Increasing Geographic Focus (Logit Models)
6.4.2 Net Profit (Logit Models)
6.5 Performance Turnarounds – Three Samples with Deteriorating Performance
6.6 Performance Turnarounds – Full Sample
Chapter 7: Acquiring Firms: Zero-sum Game vs. Win-win Scenario
7.1 The Abnormal Returns of Acquiring Firms
7.2 The Win-win Scenario: Simultaneous Valuation Effects…