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This longitudinal study looked at the impact of top managers' personal power and structural power on divestiture two years later, using a sample of 46 sales and spin‐offs and a set of 46 control firms matched by size and industry in the USA. The impact of divestiture on top managers' power during the two years following the divestiture was also looked at. Results of pair‐wise matched t‐tests reveal that firms whose top managers have less structural power are more likely to divest one year later. Logistic regression analysis shows that top managers' structural power continues to predict divestiture one year later, even after controlling for change in net income and change in earnings per share. Divestiture also seems to result in less structural power of top managers during the two years after divestiture.

AbstractWe use new firm‐level data to examine the effects of firm divestitures and privatization on corporate performance in a rapidly emerging market economy. Unlike the existing literature, we control for accompanying ownership changes and the fact that divestitures and ownership are potentially endogenous variables. We find that divestitures increase the firm's profitability but do not alter its scale of operations, while the effect of privatization depends on the resulting ownership structure – sometimes improving performance and sometimes bringing about decline. The effects of privatization are thus more nuanced than suggested in earlier studies. Methodologically, our study provides evidence that it is important to control for changes in ownership when analyzing divestitures and to control for endogeneity, selection and data attrition when analyzing the effects of divestitures and privatization.

AbstractThis paper presents an analysis of the shareholder wealth effect of voluntary corporate liquidation, the extreme form of corporate divestiture classified as a "selloff." For a sample of 37 firms that liquidated during the 1970–1982 period, the liquidation announcement is associated with statistically and economically significant stock price increases.