Ownership Structure And Divestiture Decisions

Divestitures have the potential to create shareholder value by helping firms optimize their portfolio of assets. Even so, firms do not necessarily take up divestitures because of agency problems. In fact, large controlling shareholders may prefer to extract private benefits of control at the expense of minority shareholders. In addition, divestitures may expose the misappropriation of corporate resources. In this paper, we explore the role that other blockholders play in constraining the largest shareholder's influence. The results indicate that divestiture activity decreases with the ownership of the largest shareholder, which imposes a cost to minority shareholders since the firm's value is not maximized. The presence of another significant blockholder appears to curb this negative bias towards divestitures. This finding provides an economic rationale for the higher performance of firms characterized by more balanced ownership structures. Involvement of family owners also appears to provide similar benefits.

Jan-Hendrik Sewing makes a significant contribution to opening the black box of current divestiture decision-making. He uses detailed case studies, including numerous interviews with corporate executives and experts from management consulting, private equity, and investment banking. The author develops a conceptual framework to identify remedies to behavioral pathologies and their origins. The study highlights multiple techniques for pursuing divestitures proactively and formulates best-practice recommendations.

We investigate how ownership and family control influence the decision to take part in Mamp;As as an acquirer or as an acquired company in a sample of 777 large Continental European companies in the period 1998ndash;2008. We find that ownership is negatively correlated with the probability of launching a takeover bid, and family firms are less likely to make acquisitions, especially when the stake held by the family is not large enough to assure the persistence of family control. On the passive side of Mamp;A deals, the effect of the largest shareholders' ownership on the decision to accept an acquisition proposal depends non-linearly on the voting rights they hold, and family control reduces the probability of being acquired by an unrelated party. We do not find evidence that family-controlled firms destroy wealth when they acquire other companies. Finally, we document that ownership and family control, while being negatively correlated with Mamp;A activity, are not negatively correlated with growth in firm size.

The decision of a firm to divest itself of a portion of its assets has important implications for economic efficiency. These implications have been examined extensively in the financial economics literature. One dimension of that decision that has been largely overlooked in this literature is the legal constraints placed on a firm's board of directors as it contemplates a divestiture transaction. We examine the important role played by the business judgment rule (BJR) and the limitations on its application to divestiture transactions. The BJR is especially important in the context of shareholder suits that may be brought subsequent to a divestiture decision. We also examine the protection and remedies open to creditors, and the much more limited remedies available to a firm's other stakeholders. We find that the BJR gives a firm's board of directors and managers broad latitude in making divestiture decisions. In order to invoke the legal protection implied in the BJR, directors must avoid making hasty or uninformed decisions, or placing their own interests or the interests of the corporation's officers, majority shareholders or controlling shareholders, or others before the interests of the corporation. We find that the rights of debtholders to sue in the event a divestiture adversely affects their economic interests in the firm are greatly limited. Other stakeholders in a divestiture have very limited legal protection.

Providing practical application of best practices employed in the divestiture process, Corporate Divestitures provides you with detailed guidance on how your corporation should handle a divestiture. It provides a structured approach that emphasizes disciplined execution and illustrative documents and application aids that can be adapted for use in real-world situations.

Using 1972 panel data observations of Belgian subsidiaries, I examine whether the previously documented better performance of family firms can be attributed to the more efficient divestiture decision in these firms. The results reveal that families holding large blocks of shares engage in more restructuring activity. Also, when the founder is present in the family firm, when the chairman of the board belongs to the family or when the function of CEO and chairman is not occupied by the same person, the likelihood of a voluntary restructuring will be higher. Family firms are also more sensitive to the growth of the subsidiaries and the relatedness with the other firms in the group than other firms. The results thus confirm the hypothesis that their voluntary restructuring decisions cause their better performance.

Future-proof your business today for stronger performance tomorrow The Stress Test Every Business Needs: A Capital Agenda for Confidently Facing Digital Disruption, Difficult Investors, Recessions and Geopolitical Threats provides a comprehensive approach to creating value and flexibility in an increasingly volatile business environment that presents both great risks and opportunities every day. The authors extend the banking “stress test” concept to a company’s Capital Agenda — how executives manage capital, execute transactions and apply corporate finance tools to strategic and operational decisions. Having a static Capital Agenda, however appropriate for your current market position, is not enough in today's uncertain world. Long-term success comes from building resilience into each element and in the way those elements interact. The book uses a broader definition of business stress that includes traditional macroeconomic and geopolitical risks, as well as technological disruption, hostile takeovers and activist shareholders. Companies that make poor strategic decisions or underperform operationally will likely find themselves facing great stress. And that stress is symmetric; threats come from downside risks and from missed opportunities. The chapters address the how and why of essential issues such as: Formulating corporate strategy in a digital world Pre-empting activist shareholders Restoring distressed companies to operational and financial health Ensuring effective collaboration among strategy, finance and operations Getting the most out of your advisors Proactively managing intrinsic value Rigorously allocating capital across the enterprise Acquiring and divesting for optimum value Syncing financing decisions with business strategy and capital market conditions Incorporating tax planning throughout the Capital Agenda Liberating excess cash with leading working capital management practices Aligning strategic goals and metrics to reach your company’s full potential Companies that develop strategy and set operational priorities with a balanced Capital Agenda are best positioned to control their own destiny. The Stress Test Every Business Needs provides a roadmap to future-proof your business today for stronger performance tomorrow.

The Handbook of the Economics of Corporate Governance, Volume One, covers all issues important to economists. It is organized around fundamental principles, whereas multidisciplinary books on corporate governance often concentrate on specific topics. Specific topics include Relevant Theory and Methods, Organizational Economic Models as They Pertain to Governance, Managerial Career Concerns, Assessment & Monitoring, and Signal Jamming, The Institutions and Practice of Governance, The Law and Economics of Governance, Takeovers, Buyouts, and the Market for Control, Executive Compensation, Dominant Shareholders, and more. Providing excellent overviews and summaries of extant research, this book presents advanced students in graduate programs with details and perspectives that other books overlook. Concentrates on underlying principles that change little, even as the empirical literature moves on Helps readers see corporate governance systems as interrelated or even intertwined external (country-level) and internal (firm-level) forces Reviews the methodological tools of the field (theory and empirical), the most relevant models, and the field’s substantive findings, all of which help point the way forward

How should you grow your organization? Its one of the most challenging questions an executive team faces and the wrong answer can break your firm. So where do you start? By asking the right questions, argue INSEADs Laurence Capron and coauthor Will Mitchell, of Duke Universitys Fuqua School of Business and the Rotman School of Management at the University of Toronto. Drawing on more than two decades of research and teaching, Capron and Mitchell have found that a firms aptitude for determining the best resource pathways for its growth has a defining impact on its success. Theyve come up with a helpful framework, reflecting practices of a variety of successful global organizations, to help you determine which path is best for yours.