Abstract

http://ssrn.com/abstract=891852
 
 

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Subsidiary Divestiture and Acquisition in a Financial Crisis: Operational Focus, Financial Constraints, and Ownership


Yue Maggie Zhou


University of Michigan, Stephen M. Ross School of Business

Xiaoyang Li


Cheung Kong Graduate School of Business

Jan Svejnar


School of International and Public Affairs, Columbia University, NY, USA; CEPR; IZA; CERGE-EI; University of Ljubljana

September 1, 2010

Journal of Corporate Finance, Volume 17, Issue 2, April 2011, Pages 272–287.

Abstract:     
We exploit parent- and subsidiary-level data for publicly-listed firms in Thailand before, during, and after the 1997 Asian financial crisis to investigate the extent to which firms with different types of ownership restructure their business portfolios, in terms of divestitures and acquisitions. We compare restructuring choices made by firms mostly owned by (a) domestic individuals with block shares (family firms), (b) domestic firms and/or institutions (DI firms), and (c) foreign investors (foreign firms). We show that following the crisis (1) foreign firms’ restructuring behavior is the least affected; (2) domestic firms owned by families and domestic institutions (DI) behave similarly to one another; (3) domestic firms do not increase divestiture in their peripheral segments to improve operational focus or to obtain cash in a credit crunch; they actually reduce divestiture in core segments; (4) domestic firms also significantly reduce the acquisition of new subsidiaries. Our results challenge traditional explanations for divestiture such as corporate governance, operational refocus, and financial constraints. They indicate that in the great uncertainty of a crisis, domestic firms are able to hold onto their core assets to avoid fire-sale. In essence, they act more conservatively in churning their business portfolios.

Number of Pages in PDF File: 45

Keywords: corporate restructuring, corporate governance, agency theory, economic crisis

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Date posted: March 16, 2006 ; Last revised: October 9, 2014

Suggested Citation

Zhou, Yue Maggie and Li, Xiaoyang and Svejnar, Jan, Subsidiary Divestiture and Acquisition in a Financial Crisis: Operational Focus, Financial Constraints, and Ownership (September 1, 2010). Journal of Corporate Finance, Volume 17, Issue 2, April 2011, Pages 272–287.. Available at SSRN: http://ssrn.com/abstract=891852

Contact Information

Yue Maggie Zhou (Contact Author)
University of Michigan, Stephen M. Ross School of Business ( email )
701 Tappan Street
Ann Arbor, MI 48109
United States
Xiaoyang Li
Cheung Kong Graduate School of Business ( email )
Oriental Plaza, Tower E3
One East Chang An Avenue
Beijing, 100738
China
Jan Svejnar
School of International and Public Affairs, Columbia University, NY, USA ( email )
420 West 118th Street
New York, NY 10027
United States
CEPR
77 Bastwick Street
London, EC1V 3PZ
United Kingdom
IZA
P.O. Box 7240
Bonn, D-53072
Germany
CERGE-EI
P.O. Box 882
7 Politickych veznu
111 21 Prague 1, Prague
Czech Republic
HOME PAGE: http://www.cerge-ei.cz
University of Ljubljana ( email )
Dunajska 104
Ljubljana, 1000
Slovenia
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