Evaluating the market reaction to UK divestitures

Author:

Cao Jack,Owen Sian,Yawson Alfred

Abstract

PurposeTo determine whether the abnormal returns accruing to UK companies undertaking a divestiture are different when the unit sold is in the UK or elsewhere and to specifically hypothesize that returns generated by a domestic sale will be higher than those resulting from an overseas sale.Design/methodology/approachUsing a sample of 668 divestitures reported on securities data corporation (SDC) Platinum database, and share price data from DataStream, both abnormal returns and cumulative abnormal returns (CARs) are calculated around the announcement date using the market model.FindingsThat the announcement of a divestiture generates positive abnormal returns for shareholders. Further, that the announcement of a UK divestiture generates a significantly larger positive market reaction than the announcement of an overseas divestiture. For the divestiture of units located outside the UK it is found that the largest CARs are generated when the buying firm is based in the UK.Originality/valueHere the existing work on divestiture announcement effects is extended by taking into account the location of the divested unit and the location of the buying firm. This allows one to investigate whether market reaction to an announcement of a divestiture is influenced by both the location of the unit sold and the location of the buying company.

Publisher

Emerald

Subject

General Business, Management and Accounting

Cited by 1 articles. 订阅此论文施引文献 订阅此论文施引文献,注册后可以免费订阅5篇论文的施引文献,订阅后可以查看论文全部施引文献

1. Divestiture of prior acquisitions: competing explanations of performance;Journal of Strategy and Management;2019-11-21

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