42 Pages Posted: 2 Mar 2007 Last revised: 21 Aug 2014
Date Written: July 18, 2014
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.
Keywords: Divestments, Familiarity, CEO work experience, CEO selection
JEL Classification: G34, D80
Suggested Citation: 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: https://ssrn.com/abstract=967359 or http://dx.doi.org/10.2139/ssrn.967359