Ownership Structure and Divestiture Decisions: Evidence from Australian Firms

35 Pages Posted: 10 Jan 2013 Last revised: 15 Jan 2013

See all articles by Pascal Nguyen

Pascal Nguyen

Neoma Business School; University of Technology Sydney (UTS); Financial Research Network (FIRN)

Nahid Rahman

University of Technology Sydney (UTS); Financial Research Network (FIRN)

Lucy Zhao

University of Technology Sydney (UTS); Financial Research Network (FIRN)

Date Written: January 9, 2013

Abstract

Divestitures have the potential to create shareholder value by helping firms optimize their portfolio of assets. Even so, firms do not necessarily take up divestitures because of agency problems. In fact, large controlling shareholders may prefer to extract private benefits of control at the expense of minority shareholders. In addition, divestitures may expose the misappropriation of corporate resources. In this paper, we explore the role that other blockholders play in constraining the largest shareholder’s influence. The results indicate that divestiture activity decreases with the ownership of the largest shareholder, which imposes a cost to minority shareholders since the firm’s value is not maximized. The presence of another significant blockholder appears to curb this negative bias towards divestitures. This finding provides an economic rationale for the higher performance of firms characterized by more balanced ownership structures. Involvement of family owners also appears to provide similar benefits.

Keywords: divestitures, restructuring, propensity score matching, ownership, private benefits

JEL Classification: G32, G34

Suggested Citation

Nguyen, Pascal and Rahman, Nahid I. and Zhao, Ruoyun, Ownership Structure and Divestiture Decisions: Evidence from Australian Firms (January 9, 2013). 2013 Financial Markets & Corporate Governance Conference. Available at SSRN: https://ssrn.com/abstract=2198344 or http://dx.doi.org/10.2139/ssrn.2198344

Pascal Nguyen (Contact Author)

Neoma Business School ( email )

1 Rue du Maréchal Juin
Mont Saint Aignan Cedex, 76825
France
+33 2 3282 5774 (Phone)

University of Technology Sydney (UTS) ( email )

15 Broadway, Ultimo
+61 2 9514 7718 (Phone)
+61 2 9514 7711 (Fax)

HOME PAGE: http://datasearch.uts.edu.au/business/finance/staff/StaffDetails.cfm?UnitStaffId=4415

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

HOME PAGE: http://www.firn.org.au

Nahid I. Rahman

University of Technology Sydney (UTS) ( email )

15 Broadway, Ultimo
PO Box 123
Sydney, NSW 2007
Australia

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

HOME PAGE: http://www.firn.org.au

Ruoyun Zhao

University of Technology Sydney (UTS) ( email )

15 Broadway, Ultimo
PO Box 123
Sydney, NSW 2007
Australia
612-9514-7745 (Phone)
612-9514-7711 (Fax)

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

HOME PAGE: http://www.firn.org.au

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