Divest to Acquire

28 Pages Posted: 9 Apr 2020

See all articles by Sridhar Arcot

Sridhar Arcot

ESSEC Business School - Finance Department

Nickolay Gantchev

University of Warwick - Warwick Business School; Centre for Economic Policy Research (CEPR); European Corporate Governance Institute (ECGI)

Merih Sevilir

Indiana University - Kelley School of Business - Department of Finance

Date Written: March 15, 2020

Abstract

Are divestitures only an ex-post reactive correction of past inefficient acquisitions or are they also an ex-ante proactive strategy to enhance the value of future acquisitions? We find support for the latter. Firms engaging in divestitures before making acquisitions obtain higher abnormal returns, especially in large acquisitions. These findings are not explained by management turnover or activist targeting. We provide evidence that the ‘divest to acquire’ motive ensures better performance of subsequent acquisitions and argue that divestitures and acquisitions are both critical components of a proactive approach to creating shareholder value.

Keywords: Divestitures, Acquisitions, M&A strategy, Empire building, CEOs

JEL Classification: G14, G23, G34

Suggested Citation

Arcot, Sridhar and Gantchev, Nickolay and Sevilir, Merih, Divest to Acquire (March 15, 2020). Kelley School of Business Research Paper No. 2020-63, Available at SSRN: https://ssrn.com/abstract=3554632 or http://dx.doi.org/10.2139/ssrn.3554632

Sridhar Arcot

ESSEC Business School - Finance Department ( email )

Avenue Bernard Hirsch
BP 105 Cergy Cedex, 95021
France

Nickolay Gantchev (Contact Author)

University of Warwick - Warwick Business School ( email )

Coventry CV4 7AL
United Kingdom

HOME PAGE: http://www.NickolayGantchev.com

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

HOME PAGE: http://cepr.org

European Corporate Governance Institute (ECGI) ( email )

HOME PAGE: http://ecgi.global/users/nickolay-gantchev

Merih Sevilir

Indiana University - Kelley School of Business - Department of Finance ( email )

1309 E. 10th St.
Bloomington, IN 47405
United States

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