Which Governance Characteristics Affect the Incidence of Divestitures in Australia?

Posted: 6 Jun 2015

See all articles by Pascal Nguyen

Pascal Nguyen

University of New South Wales

Nahid Rahman

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

Date Written: May 1, 2015

Abstract

Event studies indicate that divestitures create shareholder value. However, managers are generally disinclined to execute a divestiture due to their inherent preferences for growing the firm’s assets. Governance structures can play a significant role in restraining this agency conflict. Using a sample of divestitures carried out by Australian firms over a recent 10-year period, we find that board compensation and ownership concentration increase the likelihood of a divestiture. In addition, board compensation has a stronger effect in firms that are more likely to divest, while larger boards inhibit divestitures in firms that are less likely to divest. Our analysis involves a propensity score matching method. We show that poor matching can lead to large biases and inconsistencies.

Keywords: Agency conflicts, corporate governance, divestiture, matching, propensity score, restructuring

Suggested Citation

Nguyen, Pascal and Rahman, Nahid I., Which Governance Characteristics Affect the Incidence of Divestitures in Australia? (May 1, 2015). Australian Journal of Management, Vol. 40, No. 2, 2015. Available at SSRN: https://ssrn.com/abstract=2614549

Pascal Nguyen (Contact Author)

University of New South Wales ( email )

Sydney, NSW 2052
Australia
(61) 2-9385-5773 (Phone)
(61) 2-9385-6730 (Fax)

HOME PAGE: http://www.banking.unsw.edu.au/pascalnguyen/

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

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