Abstract

http://ssrn.com/abstract=967359
 
 

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Does Familiarity with Business Segments Affect CEOs' Divestment Decisions?


James S. Ang


Florida State University

Abe De Jong


Erasmus University - Rotterdam School of Management

Marieke Van der Poel


Erasmus University - Rotterdam School of Management

July 18, 2014

Journal of Corporate Finance, Forthcoming

Abstract:     
We examine the impact of familiarity with business segments on CEOs’ divestment decisions. We find CEOs are less likely to divest assets from familiar than from non-familiar segments. We attribute this effect to CEOs’ comparative information advantage with respect to familiar segments. Consistent with this information advantage, we document that the familiarity effect is particularly strong in R&D intensive industries. We further find the familiarity effect to be most pronounced for longer-tenured CEOs who have built up sufficient political power over the course of several years in office to enable implementation of their preferred divestment choices. We also document the value effects of divestments and show that familiarity affects returns on divestment announcements.

Number of Pages in PDF File: 42

Keywords: Divestments, Familiarity, CEO work experience, CEO selection

JEL Classification: G34, D80

Accepted Paper Series





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Date posted: March 2, 2007 ; Last revised: August 21, 2014

Suggested Citation

Ang , James S. and de Jong, Abe and van der Poel, Marieke, Does Familiarity with Business Segments Affect CEOs' Divestment Decisions? (July 18, 2014). Journal of Corporate Finance, Forthcoming. Available at SSRN: http://ssrn.com/abstract=967359 or http://dx.doi.org/10.2139/ssrn.967359

Contact Information

James S. Ang
Florida State University ( email )
College of Business
Tallahassee, FL 32306-1042
United States
904-644-8208 (Phone)
Abe De Jong
Erasmus University - Rotterdam School of Management ( email )
P.O. Box 1738
Room T09-53
3000 DR Rotterdam
Netherlands
+31 10 408 1022 (Phone)
HOME PAGE: http://web.eur.nl/fbk/dep/dep5/faculty/ajong
Marieke Van der Poel (Contact Author)
Erasmus University - Rotterdam School of Management ( email )
P.O. Box 1738
Room T09-43
Rotterdam, 3000 DR
Netherlands
+31 10 4081528 (Phone)
+31 10 4089017 (Fax)
HOME PAGE: http://www.rsm.nl/mvanderpoel
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