Causes and Effects of Corporate Refocusing

Posted: 8 Dec 1998  

Philip G. Berger

University of Chicago - Booth School of Business

Eli Ofek

New York University (NYU) - Department of Finance

Abstract

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, G32

Suggested Citation

Berger, Philip G. and Ofek, Eli, Causes and Effects of Corporate Refocusing. Review of Financial Studies, Vol. 12, Issue 2. Available at SSRN: https://ssrn.com/abstract=140414

Philip G. Berger (Contact Author)

University of Chicago - Booth School of Business ( email )

5807 S. Woodlawn Avenue
Chicago, IL 60637
United States
773-834-8687 (Phone)
773-834-4585 (Fax)

Eli Ofek

New York University (NYU) - Department of Finance ( email )

Stern School of Business
44 West 4th Street
New York, NY 10012-1126
United States

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