Australian divestitures and an alternative argument for explaining divestiture gains

TL;DRAbstract

Based on Australian divestiture activity, this thesis helps resolve the ambiguity as to the source of divestiture gains via a three-step procedure. First, using event study methodology it demonstrates that, analogous to US divestiture activity, Australian divestiture activity produces positive abnormal returns of 1.15% on average. Second, it rationalises previous research into two distinct paradigms within which the divestiture decision may be considered: the strategic or focus rationale and the financial rationale. By segregating the sample into 'strategic' and 'non-strategic' divestitures it finds that only the former category produce significant positive abnormal returns (of approximately 1.73% on average). Finally, the announcement effect of the intended use of proceeds of sell-offs is examined. III support of the primary results, the abnormal returns accruing to firms who intend to retain the proceeds and use them for investment (strategic) activities (3.2%) are larger than those

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