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Firm size and the gains from divestitures

Dahlum, Jens Martin; Tai, Jun Chao
Master thesis
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URI
http://hdl.handle.net/11250/2383085
Date
2015
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  • Master Thesis [4656]
Abstract
Recent academic studies indicate that corporate divestitures generate considerable shareholder

wealth. The field is emerging as an important topic in the finance, strategy and organizational

literature, but the understanding of what determines these gains remains somewhat fragmented

and inconsistent. This thesis contributes to this understanding by specifically studying the

effect of firm size on seller announcement abnormal return. We use a sample of 6699

divestitures completed by 2350 different sellers in the United States between 1995 and 2014

and conclude that small sellers outperform large sellers by an average of 1.96% at the

announcement of divestitures. The size effect is robust to a wide range of firm and deal

characteristics introduced by the literature. We propose that the size effect could be explained

by greater idiosyncratic risk associated with the divestiture announcement by small sellers.

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