Finance Discipline Group
UTS Business School
University of Technology, Sydney

Working Paper Series

Title:
Which Governance Characteristics Affect the Incidence of Divestitures in Australia?
Author(s): Pascal Nguyen and Nahid Rahman
Date of publication: January 2014
Working paper number: 180
Abstract:
Event studies indicate that divestitures create shareholder value. However, managers are generally disinclined to execute a divestiture due to their inherent preferences for growing the firm’s assets. Governance structures can play a significant role in restraining this agency conflict. Using a sample of divestitures carried out by Australian firms over a recent 10-year period, we find that board compensation and ownership concentration increase the likelihood of a divestiture. In addition, board compensation has a stronger effect in firms that are more likely to divest, while larger boards inhibit divestitures in firms that are less likely to divest. Our analysis involves a propensity score matching method. We show that poor matching can lead to large biases and inconsistencies.
Paper: Download (Format: PDF, Size: 408 Kb)
Comments: Published as: Nguyen, P. and Rahman, N., 2015, "Which Governance Characteristics Affect the Incidence of Divestitures in Australia?", Australian Journal of Management, 40(2), 351-374.