Subsidiary divestiture and acquisition in a financial crisis: operational focus, financial constraints, and ownership

0358761 - NHU-C 2012 RIV NL eng J - Journal Article
Zhou, Y. M. - Li, X. - Švejnar, Jan
Subsidiary divestiture and acquisition in a financial crisis: operational focus, financial constraints, and ownership.
Journal of Corporate Finance. Roč. 17, č. 2 (2011), s. 272-287. ISSN 0929-1199. E-ISSN 1872-6313
R&D Projects: GA ČR GAP402/10/2130; GA MŠMT LC542
Institutional research plan: CEZ:MSM0021620846
Keywords : divestiture * corporate restructuring * financial constraints
Subject RIV: AH - Economics
Impact factor: 1.447, year: 2011

We exploit parent- and subsidiary-level data for publicly listed firms in Thailand before, during, and after the 1997 Asian Financial Crisis to investigate the extent to which firms with different types of ownership restructure their business portfolios, in terms of divestitures and acquisitions. We compare restructuring choices made by firms mostly owned by (a) domestic individuals with block shares (family firms), (b) domestic firms and/or institutions (DI firms), and (c) foreign investors (foreign firms). We show that following the crisis (1) foreign firms' restructuring behavior is the least affected; (2) domestic firms owned by families and domestic institutions (DI) behave similarly to one another; (3) domestic firms do not increase divestiture in their peripheral segments to improve operational focus or to obtain cash in a credit crunch; they actually reduce divestiture in core segments; and (4) domestic firms also significantly reduce the acquisition of new subsidiaries. Our results challenge traditional explanations for divestiture such as corporate governance, operational refocus, and financial constraints. They indicate that in the great uncertainty of a crisis,
Permanent Link: http://hdl.handle.net/11104/0196704