Corporate Focusing and Internal Capital Markets / Frederik P. Schlingemann, Rene M. Stulz, Ralph A. Walkling.

Format:

Book

Author/Creator:

Schlingemann, Frederik P.

Contributor:

National Bureau of Economic Research.

Stulz, Rene M.

Walkling, Ralph A.

Series:

Working Paper Series (National Bureau of Economic Research) no. w7175.

NBER working paper series no. w7175

Language:

English

Subjects (All):

Econometric models.

Econometrics.

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 1999.

Cambridge, Massachusetts : National Bureau of Economic Research, 1999.

Summary:

A sample of firms that focus by divesting at least one segment allows us to investigate the characteristics of segments divested as well as the nature of focusing firms. We find that firms are more likely to divest segments unrelated to the core activities of the firm and that the probability that a segment is divested is inversely related to its relative size within the firm. In fact, a segment's relative size is the variable that has the most explanatory power in predicting which segment a firm divests. We argue that this is consistent with the importance of asset market liquidity as a determinant of the divestiture decision. Financial constraints play an important role in determining which firms focus, which segments these firms divest, and in the market's reaction to divestiture announcements. Focusing firms perform less well and invest significantly less than heir non-focusing counterparts.

Notes:

Print version record

June 1999.