Showing papers on "Divestment published in 1993"

Why managers divest—Evidence from New Zealand's largest companies

Abstract: Chief Executives from New Zealand's largest companies were surveyed to distinguish divesting and nondivesting companies, and to identify the relative importance of the factors and motives which led to the divestment of 208 business units in the period 1985 through 1990 The divesting companies were considerably larger and faster growing than nondivestors The typical divestment was motivated by the need to convert unattractive assets into liquid form which could then be held to strengthen the balance sheet, or reinvested in either the core business or new areas

Strategic redirection in large management buyouts: The evidence from post‐buyout restructuring activity

Abstract: This study examines the nature of post-transaction restructuring activities for 32 large U.S. corporations that underwent management buyouts between 1983–89. This study (i) provides evidence on the extent and type of divestment and acquisition activities under private ownership; (ii) documents the outcomes associated with MBOs and the longevity of the buyout organization; and (iii) investigates the claim that buyouts are primarily mechanisms for breaking up public corporations and selling the pieces to related acquirers. The balance of the evidence indicates that restoring strategic focus is an essential function of the buyout for these large firms. However, the evidence also indicates that the buyout organization does continue to operate significant parts of the prebuyout firm. By far the majority of firms continue to meet their debt obligations satisfactorily during the buyout phase. Finally, the evidence indicates that asset sales to related acquirers derive more from efficiency considerations than market power.

Costly Gains to Breaking Up: Lecs and the Baby Bells

Abstract: While the divestiture of AT&T was intended to produce benefits in the long-distance market, the evidence suggests it has created an unexpected side benefit in local telephone markets. The authors' results show that local exchange carriers have realized immediate cost savings in responding to competitive pressures since the breakup, with the baby Bells experiencing generally larger gains. Dynamically, these productivity gains have increased over time at a relatively constant rate. Although gains of 3-5 percent of total cost are not that large, the absolutely large costs of telephone companies imply significant cost savings of nearly $72 million for the representative firm. Copyright 1993 by MIT Press.

Influence Costs and Capital Structure

Abstract: This paper analyzes the role of capital structure in the presence of intrafirm influence activities. The hierarchical structure of large organizations inevitably generates attempts by members to influence the distributive consequences of organizational decisions. In corporations, for example, top management can reallocate or eliminate quasi rents earned by their employees, while at the same time, they must rely on these employees to provide them with information vital to their decision making. This creates the opportunity for lower level managers to influence top management's discretionary decisions. As a result, divisional managers may attempt to inflate the corporate perception of their relative contributions to the firm, or to take actions that make the elimination of their rents more costly for the firm. This incentive to influence is especially acute when managers fear losing their jobs, for example in the event of a divestiture. Since the firm's capital structure can affect future divestiture decisions, it can be chosen to reduce or increase the divisional managers' incentives to influence top management's decisions. The control of influence activities arises at the expense of restrictions on future divestiture decisions. Hence, there emerges an optimal capital structure that trades off the costs of influence activities against the costs of making poor divestiture decisions. The findings suggest that capital structure can also be chosen to control influence activities that arise under less extreme motivations. We identify several key factors that determine the optimal capital structure: the top management's prior assessment of the likelihood that it will be optimal to divest a specific division; the costs of influence activities to the firm and to the divisional managers; and the difference in the valuation of the division's assets in the current firm and under alternative uses.

Corporate Divestment: An Overview

Abstract: Brings together the different strands of the divestment literature – industrial organization, finance, and corporate strategy – which have been developing over the last 20 years. Points to be increased resort to divestment by corporate managers and suggests that this adaptive activity should now be accepted as a normal phase of company development. However, such acceptance is made difficult by factors which fall within the domain of managerial psychology. Provides an overview which should be useful to practitioners confronting divestment decisions and to academics embarking on new research in the area.

The Political Economy of Privatization through Divestiture in Lesser Developed Economies

Abstract: The A. puts forward a framework of analysis to organize conceptually the many factors often cited in the literature dealing with privatization policies in lesser developed economies. Using Argentina as a case in point, it argues that the concept of policy substitutability can help us in understanding why Latin American leaders are embracing privatization policies while their predecessors had advocated state interventionism.

Assessing the Impacts of Divestiture and Deregulation in Telecommunications

Abstract: Ten years ago, on January 8, 1982, the end of the century-old ATT the trust-busting sentiment of the period also led in 1913 to a commitment by AT&T to the Department of Justice that contained the company structurally and behaviorally. During the New Deal, a more centralized regulatory structure emerged through the Communications Act of 1934. As part of the burden-sharing philosophy of the time, AT&T was left intact, and financial transfers were built into the system to achieve universal service. A key element of regulation was the limitation of monopoly profits by the imposition of rate-of-return regulation. This inevitably also led to regulation of service quality, investments, expenditures, and rate structure, since all of these enter into the overall profit picture. Perhaps most importantly, it led to control of market structure and restriction of entry. During the New Deal, concerns were raised in an FCC study over AT&T's vertical integration. After a hiatus during the war years, the Justice Department followed up with an antitrust suit that ended in 1956 with a consent decree which kept AT&T intact but restricted it to its existing lines of business. Even so, the seeds for the end of monopoly were sowed soon thereafter. The Above 890 (1959) decision allowed firms to provide microwave long-distance services for their own use. This led in time to the offering of service to others, determined in the MCI case (1968), and to eventual public switched offerings (MCI Execunet, 1978). Similarly, the Hush-a-Phone (1955) and Carterfone (1968) cases opened the door to competition in the provision of equipment attached to the AT&T network.

Soviet all‐union enterprises as new multinationals of the CIS

Abstract: This paper examines the restructuring of the former Soviet economy provoked by the break-up of the USSR and the creation of the Commonwealth of Independent States. Particular attention is devoted to the changes taking place in the former All-Union enterprises that have now essentially become new multinationals. The pressures influencing the two parallel developments of internalization and divestment are examined and illustrated using two case studies. © 1993 John Wiley & Sons, Inc.

The international expansion process: a model and empirical evidence.

Abstract: This paper presents a model of the international expansion process based on a comprehensive study of the seven Regional Bell Operating Companies since their 1984 divestiture from AT&T. Using a case study research methodology, the research also examined the influences on and the key dimensions of the international expansion process.

Have voluntary divestitures of US corporations increased shareholder wealth? Empirical evidence from the life cycle

Abstract: Stock price performance resulting from voluntary divestiture has been shown to vary depending upon the motivation for divestiture. In a previous study it was shown that voluntary divestiture motivations depend on the life-cycle stage of the divestor. The present study shows that stock price performance surrounding a divestiture announcement depends on the life-cycle stage of the divesting firm, with firms in the later life-cycle stages generally performing more poorly than firms in earlier life-cycle stages. No group was shown, however, to generate significant positive cumulative average residuals over the observation period when compared to an appropriately matched control group.

Strategic Divestment in the Public Sector: Patterns from France and Great Britain

Abstract: Public sector divestment has emerged in the 1980s as a major phenomenon in both industrialized and developing countries (Bejot, 1988; de Croisset, Prot, and de Rosen 1986; Hemming and Mansoor, 1988; Horvath, 1990; Ramanadham, 1988; Schares and Reaves, 1990; Shirley, 1988). It covers a wide array of activities, ranging from the sale of a state-owned firm to a private sector suitor, better labeled as a privatization, to a simple restructuring of a state organization to make it more responsive to market forces.

The Meaning of ‘Complex Monopoly’

Abstract: The complex monopoly provisions' of the Fair Trading Act 1973 (FTA) are one of the principal means under UK legislation of regulating the anti-competitive behaviour of individual firms. Following a reference by the Director General of Fair Trading or the Secretary of State for Trade and Industry, a 'complex monopolist' undergoes investigation by the Monopolies and Mergers Commission (the Commission) with a view to establishing whether the complex monopoly of which it is a member is operating against the public interest. If the Commission finds that it is, the Secretary of State has the power to ask the Director General to obtain undertakings from the individual companies or can make an order to prevent or remedy the adverse effects. His powers include the ability to impose price controls or order divestment of a business.

The effects of divestiture, privatization, and competition on productivity in U.S. and U.K. telecommunications: a brief note

Abstract: John Kwoka's article, 'The Effects of Divestiture, Privatization, and competition on Productivity in U.S. and U.K. Telecommunications', provides some valuable information regarding the impact of recent regulatory changes in the telecommunications industry. Kwoka is on the forefront in providing us with quantitative measurements of how changes in market structure have affected productivity. Kwoka estimates the impact that divestiture and competition in the interexchange market had on AT&T's productivity. He found that competition has been responsible for seventeen percent of the firm's productivity gains during the years 1977-87. This gain has partially been offset by a reduction in productivity resulting from the divestiture of the Bell Operating Companies. In the United Kingdom, the era of competition is more recent, and therefore his data set for that country includes only one year during which British Telecom faced competition. Perhaps because of this short time frame, competition has yet to have an effect on the firm's productivity. Nevertheless, Kwoka does find that privatization of British Tetecom has been responsible for twenty-five percent of the firm's productivity gains in recent years. The conclusions drawn, that increased competition can increase productivity, and that a major structural change, such as divestiture, will be disruptive, are consistent with the prior beliefs of most economists. Regulation was not an effective force at governing the behavior of AT&T, and competition could prove to be a more effective tool. With respect to the situation in the United Kingdom, the privatization of the industry changed the incentives faced by the managers, and this has led to increased productivity. While the signs of the estimated coefficients are consistent with our priors, the results still must be treated with caution. Despite the achievements made in theoretical industrial organization and econometrics, the value of our work remains constrained by the quality of the available accounting data. For studies of industries which have undergone technological change, such as telecommunications, the analyst must construct an index that controls for technological change. If the accounting data is not properly adjusted, what is in reality a shift in the production or cost function, may be misinterpreted as strong economies-of-scale.