To Divest or not to Divest: A Meta‐Analysis of the Antecedents of Corporate Divestitures
| Published date | 01 January 2016 |
| DOI | http://doi.org/10.1111/1467-8551.12145 |
| Author | Kalin D. Kolev |
| Date | 01 January 2016 |
British Journal of Management, Vol. 27, 179–196 (2016)
DOI: 10.1111/1467-8551.12145
To Divest or not to Divest: A Meta-Analysis
of the Antecedents of Corporate Divestitures
Kalin D. Kolev
Department of Management, College of Business Administration, Marquette University, Milwaukee, WI,
53201, USA
E-mail: kalin.kolev@marquette.edu
Corporate divestitures have been identified as important strategic actions with a posi-
tive impact on firm performance. Yet, what is still missing in the strategic management
literature is an integrative framework that quantitatively synthesizes the relative impact
of various antecedents to divestitures, and theoretically reconcilesthe multitude of theo-
ries underlying divestiture research. To fill this gap, the author conducts a meta-analysis
(based on a sample of 35 studies) and develops four broad categories of determinants:
corporate governance; firm strategy; performance;and industry environment. Evidence is
found that divestituresare driven mainly by prior divestment experience,structural factors
(firm size and firm diversification) and weak unit performance. In addition, the relative
predictive validity of several theoretical perspectives on divestment decisions is assessed.
Introduction
Corporate divestitures are major strategic de-
cisions with important implications for firm
competitiveness and profitability. Divestitures
represent adjustments to a firm’s ownership
and business portfolio structure via a sell-o,
spin-o and carve-out of a business unit, or sale
of corporate assets (Brauer, 2006; Mulherin and
Boone, 2000). Following prior research, I use the
terms ‘divestitures’, ‘divesting’, ‘divestment’ and
‘divestment activity’ interchangeably in this paper.
Existing research provides evidence that divesti-
tures alleviate problems of misallocation of cor-
porate resources (Hoskisson and Johnson, 1992),
improve managerial ability to coordinate a leaner
organization (Hoskisson and Turk, 1990) and in-
crease profitability (Lee and Madhavan, 2010). As
such, divestitures strengthen internal structural ar-
rangements and improve the competitive position
in the external environment.
The author would like to thank Gerry McNamara for
valuable comments and suggestions on earlierversions of
the manuscript. I also appreciate the help of Yuan Tao
and Max Belin with data collection. Finally,I am grateful
to the editor-in-chief Georey Woodand anonymous re-
viewers for their guidance throughout the review process.
Despite the positive eects of divestitures, man-
agers may be reluctant to undertake them, since
they often come at a personal cost. First, divesti-
tures might require the admission of prior mistakes
and inappropriate strategies (e.g. McNamara,
Moon and Bromiley, 2002). Second, divesting is
inconsistent with the growth goals of managers
(Donaldson and Lorsch, 1983), since it typically
reduces firm size and managerial compensation.
Finally, since divestitures lead to major structural
changes in the firm, they generate intense political
issues and resistance inside and outside the firm
(Dial and Murphy, 1995). Since a decision to
divest has important and beneficial strategic
implications, but can be dicult to undertake,
there are both theoretical and practical benefits in
understanding the factors that facilitate or hinder
divestitures. However, there are three factors that
limit the ability to draw strong conclusions about
divestiture antecedents from the extant literature.
While prior research has identified a broadnumber
of antecedents, the latter have usually been studied
in isolation, with little focus on developing an
integrative framework of divestiture determinants.
In addition, there is empirical disagreement on
the strength and sign of the relationship between
certain antecedents and divestitures. Finally, while
multiple theoretical perspectives have been used to
© 2015 British Academy of Management. Published by John Wiley & Sons Ltd, 9600 Garsington Road, Oxford OX4
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180 K. D. Kolev
study divestitures, there is still a lack of consensus
on which of them have the strongest predictive
power regarding divestitures.
Tofill this gap, I conduct a meta-analytic review,
which develops an integrative framework of the
most common divestiture drivers, reconciles exist-
ing empirical inconsistencies on the relationships
between antecedents and divestitures, and synthe-
sizes the theories best suited to explain divesti-
tures. I aim to make several contributions to the
literature.
First, contrary to the majority of existing
divestiture research that studies the divestment
decision in isolation, I build an integrative frame-
work, arguing that divestitures are driven by
factors related to internal ineciencies and weak
structural arrangements, and suboptimal condi-
tions in the external environment. In particular, I
build on prior theorizing (Brauer, 2006; Johnson,
1996) to suggest four broad categories of divesti-
ture antecedents: corporate governance; firm
strategy; performance; and industry environment
determinants.
Second, via a meta-analysis I can obtain more
robust eects, discuss with greater confidence the
results obtained, and make broader generaliza-
tions on the validity of findings across various
samples and research conditions. Also, with a
meta-analysis I can resolve conflicting findings
in existing research. For example, while some
studies report a negative relationshipbetween firm
performance and divestitures (Hoskisson, John-
son and Moesel, 1994; Shimizu and Hitt, 2005),
others find a positive one (Berry, 2010; Quigley
and Hambrick, 2012). Similarly, some studies
identify a positive association between managerial
equity and divestitures (Chatterjee, Harrison and
Bergh, 2003), but others provide evidence for a
negative relationship (Sanders, 2001; Shimizu,
2007). Finally, I can assess the relative importance
of dierent factors aecting divestitures and the
predictive validity of their underlying theories.
Overall, this study allows the following ques-
tions to be answered: To what extent do various
antecedents that can be derived from commonly
used theories drive divestitures? Which commonly
used theories are best suited to explain divestment
decisions?
The paper is organized as follows. I begin by
describing the overall framework of divestiture
determinants and develop hypotheses on the
factors aecting divestitures. Then, I describe the
methodological approach, followed by the results.
I conclude with a discussion of the findings,
limitations and suggestions for future research.
Theory and hypotheses
Divestitures are major strategic decisions with
critical implications for the firm’s structure, com-
petitive strategy and performance (Brauer, 2006).
In other words, divestitures could be viewed as
means to achieve optimal structural arrangements
within the firm and strong competitive position
in the external environment. Addressing these
two objectives probably puts the firm in a better
position to compete, achieve a competitive ad-
vantage and enhance profitability. If managers are
to fulfill those two objectives, they need to focus
on factors facilitating or hindering divestitures in
order to achieve internal firm eciency and ex-
ternal environmental adaptability. Subsequently,
from a strategic management perspective, it is
not only important to outline the antecedents
of divestitures, but also to categorize them in a
theoretical framework. Ultimately, I posit that
divestitures are driven by factors related to: (a)
internal ineciencies and weak structural ar-
rangements; and (b) suboptimal conditions in the
external environment. Developingsuch a model of
divestiture antecedents is consistent with several
prior articles on divestitures (Brauer, 2006; John-
son, 1996; Moschieri and Mair, 2008), which have
followed this internal–external framework and
have argued for four broad categories of factors
influencing divestitures: corporate governance
determinants; firm strategy determinants; perfor-
mance determinants; and industry environment
determinants. Using this framework not only
allows me to examine the magnitude of eect sizes
for each of these antecedent factors, butalso helps
outline which of these categories has the highest
predictive validity in terms of firms’ engagement
in divestiture activities.Furthermore, each of these
categories of factors has been strongly related to a
specific theory or theories, and the incorporation
of the latter into the proposed framework could
serve as a means of synthesis and assessment of
the validity of those theories as they apply to
corporate divestitures (cf. Sleesman et al., 2012).
In particular, I posit that firm factors such as
strategy and performance determinants will have
the strongest impact on divestitures, followed by
© 2015 British Academy of Management.
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