Exploring divestitures: Studies on motivation factors and tools

• Main Author: QIAO, Yun
• Format: text
• Language: English
• Published: Institutional Knowledge at Singapore Management University 2024
• Subjects: divestitures; divestiture tools; ownership concentration; Business Administration, Management, and Operations; Strategic Management Policy
• Online Access: https://ink.library.smu.edu.sg/etd_coll/592; https://ink.library.smu.edu.sg/context/etd_coll/article/1590/viewcontent/GPBA_AY2018_DBA_Qiao_Yun.pdf
• Institution: Singapore Management University

This paper explores the phenomenon of 'big company disease' commonly experienced by large companies as they expand. In Western markets, companies are more inclined to respond to the financial market by undergoing divestitures to address this issue. Divestitures simplify the company's structure, making it easier for investors to understand its value. Consequently, this facilitates companies in acquiring more capital resources and provides strong incentives for management. However, in emerging markets, divestitures are less likely due to a less developed financial market and the advantages associated with maintaining a large size and control. The first study focuses on how listed companies in the US respond to the financial market when making divestiture decisions. The second study explores the motivations of Chinese companies through three case studies, revealing that non-capital market related factors and the competitive nature of the industry significantly influence divestiture decisions in Asian big companies. The third study examines the divestiture strategies employed by Asian companies. The findings highlight that listed companies are more inclined to respond to market dynamics, seek third-party investor groups, relinquish control over divested units, and provide management incentives. The study emphasizes the importance of advanced corporate governance to facilitate beneficial divestitures. Additionally, it shows that private companies, when compared to state-owned enterprises, are more likely to relinquish control over divested units. It underscores the significance of introducing private capital into state-owned companies and deepening mixed-ownership reform to provide incentives and improve efficiency. In conclusion, divestitures are effective ways to address the 'big company disease' in Asia.