CORPORATE DIVESTITURE INTENSITY IN RESTRUCTURING FIRMS: EFFECTS OF GOVERNANCE, STRATEGY, AND PERFORMANCE.

Abstract

Both inadequate governance and inappropriate strategy have been proposed as antecedents of the divestment activity of restructuring firms in the 1980s. We combined both views in a structural equation model in which divestment intensity is directly related to firm performance and strategy, which are in turn preceded by weak governance. Some supportive results indicate that blockholder equity, a governance antecedent, and relative product diversification (strategy) have important indirect effects on divestment activity and that relative product diversification and relative debt have important direct effects. Unpredicted findings concerning board outsider equity and components of divestment intensity emerged. Also, market performance mediates the relationship between accounting performance and divestiture intensity.