Causes and Effects of Corporate Refocusing
Philip G. Berger
University of Chicago - Booth School of Business
New York University (NYU) - Department of Finance
Review of Financial Studies, Vol. 12, Issue 2
We study the precursors and outcomes of refocusing episodes by 107 diversified firms that were not taken over between 1984 and 1993. These firms had more value-reducing diversification policies than diversified firms that did not refocus. However, major disciplinary or incentive-altering events (including management turnover, outside shareholder pressure, changes in management compensation, and financial distress) usually occurred before refocusing took place. The cumulative abnormal returns over a firm's refocusing-related announcements averaged 7.3%, and were significantly related to the amount of value-reduction associated with the refocuser's diversification policy.
JEL Classification: G31, G32Accepted Paper Series
Date posted: December 8, 1998
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