How do forced divestitures differ from non-forced divestitures?
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2024-06-21
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en
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n today’s turbulent world, full of geopolitical tensions, sanctions, and institutional pressures, a lot of firms feel forced to leave certain countries. However, we do not know how these forced divestitures differ from non-forced divestitures and how the reactions to these announcements differ. This event-study examines this impact of divestiture announcements on stock market reactions, focusing on differences between forced and non-forced divestitures, in a Russian-US sample of 772 divestitures. It considers the perspectives of targets and their ultimate parents (TUP) and examines the moderating role of sanctions and institutional pressures for forced divestiture announcements. Using signalling theory and institutional theory, the study found that non-forced divestiture announcements on average have a positive impact on short-term stock market reactions. Interestingly, for forced divestiture announcements this impact is even more positive, which indicates that institutional pressures and legitimacy play an increasingly important role for firms in determining whether to divest. The findings provide valuable insight for managers, investors, policymakers, and researchers interested in understanding the complex relationship between divestiture announcements and stock market reactions, and how these differ for forced and non-forced divestitures.
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Faculteit der Managementwetenschappen