THE EFFECT OF CORPORATE DIVESTMENTS ON SHAREHOLDER WEALTH - THE UK EXPERIENCE

This paper examines the stockmarket reaction to corporate divestments by a large sample of U.K. companies and investigates some of the specific factors at work. Various competing theories are discussed and predictions tested empirically. Attention is focused on the effects of different degrees of uncertainty in the divestment process and relative size of sell-off. Inter alia, price disclosure has a decisive impact on stockmarket reaction. In addition, we explore the 'bankruptcy avoidance' related hypothesis and find degree of financial distress prior to divestment to be inversely related to abnormal return. This result is consistent with market approval for such 'distress' sales.