SEQUENCE TO SUCCESS – COMBINING ACQUISITIONS AND DIVESTMENTS AS INCREMENTAL REAL OPTIONS
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2022-06-27
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en
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the long run. As such, acquisitions and divestments are ubiquitous means utilized
by firms to accomplish this goal. However, thus far research has not investigated the
combined effect of acquisition and divestment activities on a firm’s financial performance. Through the lens of real options theory, this research investigates this dimension by means of a sample of 5101 firms covering the time period between 2000 and 2020. To establish differing acquisition and divestment portfolio strategies, differing cluster sequence patterns, representing different patterns of acquisition and divestment activity, have been derived using a hierarchical clustering method. Those clusters subsequently serve as input for several robust ordinary least square regressions to investigate the hypothesized effects. The results show that divestment activities have a significant positive effect on a firm’s financial performance. Furthermore, particular sequence patterns showsignificantly superior financial performance
in comparison to other clusters. In addition, financial slack displays a significant,
however, inconsistent moderating effect on the sequence cluster – financial performance relationship; The chosen strategy should be based on the level of available financial slack to improve the firm’s financial performance. Lastly, extra-entrainment shows a negatively significant effect on financial performance. This research contributes to the existing real options reasoning literature by viewing acquisition and divestment activities as interlinked activities over several years. Hence, this research attempts first strides into a new realm of management research, leaving ample opportunities for subsequent research to investigate this phenomenon in more detail.
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Faculteit der Managementwetenschappen