Why are the Wealth Effects of UK Firms' Foreign Divestitures so Large?

27 Pages Posted: 6 Mar 2005

See all articles by Hardy M. Thomas

Hardy M. Thomas

University of Essex

Jerry Coakley

University of Essex - Essex Business School

Han Min Wang

Feng Chia University

Date Written: March 2005

Abstract

We study the short-run wealth effect of a sample of 165 foreign divestitures by UK firms 1986-1995. These foreign asset sales by UK firms lead to significantly positive shareholder wealth effects of some 4.8% over the 10 days before and after the announcement day, which are several times larger than the corresponding wealth effects reported for US firms. Our findings are robust to factors such as size, market to book, and GARCH effects. We make adjustments for possible thin trading effects and for cross-sectional dependence in abnormal returns but our results are qualitatively unchanged. We conclude that the wealth gains are primarily associated with an increase in geographical focus than with increases in industrial focus, which is commonly associated with domestic divestitures. We also conclude that the market reacts more favourably to sales of assets that are located in non Anglo-Saxon corporate governance regimes when compared to assets located in Anglo-Saxon regimes.

Keywords: International asset sales, industrial focus, geographical focus, corporate governance

JEL Classification: G14, G34

Suggested Citation

Thomas, Hardy Mathew and Coakley, Jerry and Wang, Han Min, Why are the Wealth Effects of UK Firms' Foreign Divestitures so Large? (March 2005). Available at SSRN: https://ssrn.com/abstract=676968 or http://dx.doi.org/10.2139/ssrn.676968

Hardy Mathew Thomas (Contact Author)

University of Essex ( email )

Wivenhoe Park
Colchester, CO4 3SQ
United Kingdom
44 01 206-873415 (Phone)
44 1206-873429 (Fax)

Jerry Coakley

University of Essex - Essex Business School ( email )

Wivenhoe Park
Colchester, CO4 3SQ
United Kingdom
+44 1206 872455 (Phone)
+44 1206 873429 (Fax)

HOME PAGE: http://www.essex.ac.uk/afm/staff/coakley.shtm

Han Min Wang

Feng Chia University ( email )

100 Wenhwa Road
Talchung
Taiwan

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
51
Abstract Views
656
rank
399,516
PlumX Metrics