Showing papers on "Divestment published in 2013"

Stranded assets and the fossil fuel divestment campaign: What does divestment mean for the valuation of fossil fuel assets?

Abstract: ‘Stranded assets’, where assets suffer from unanticipated or premature write-offs, downward revaluations or are converted to liabilities, can be caused by a range of environment-related risks. This report investigates the fossil fuel divestment campaign, an extant social phenomenon that could be one such risk. We test whether the divestment campaign could affect fossil fuel assets and if so, how, to what extent, and over which time horizons. Divestment is a socially motivated activity of private wealth owners, either individuals or groups, such as university endowments, public pension funds, or their appointed asset managers.1 Owners can decide to withhold their capital—for example, by selling stock market-listed shares, private equities or debt—firms seen to be engaged in a reprehensible activity. Tobacco, munitions, corporations in apartheid South Africa, provision of adult services, and gaming have all been subject to divestment campaigns in the 20th century. Building on recent empirical efforts, we complete two tasks in this report. First, we articulate a theoretical framework that can evaluate and predict, albeit imperfectly, the direct and indirect impacts of a divestment campaign. Second, we explore the case of the recently launched fossil fuel divestment campaign. We have documented the fossil fuel divestment movement and its evolution, and traced the direct and indirect impacts it might generate. In order to forecast the potential impact of the fossil fuel campaign, we have investigated previous divestment campaigns such as tobacco and South African apartheid.

An exploratory study of the decision processes of fast versus slow fashion consumers

Abstract: Purpose – The purpose of the study is to explore the differences between fast fashion and slow fashion consumers in regards to their consumer decision process stages (i.e. purchase/consumption, post‐consumption evaluation, and divestment).Design/methodology/approach – Qualitative data were collected via focus groups and personal interviews. Participants were recruited through flyers that were posted at various locations, including a college campus, select retail stores, and www.craigslist.com The sample consisted of 38 participants, 22 fast fashion and 16 slow fashion. All participants were female, 18 years of age or older, with a mean age of 21.2 years.Findings – Three groups of themes emerged. The purchase/consumption themes were buyers’ remorse avoidance, utilitarianism, hedonism, and style/self‐image congruence. The post‐consumption evaluation themes included instant satisfaction vs continued satisfaction and consumer expectation confirmation. Finally, the divestment themes consisted of divestment fre...

When Do Firms Divest Foreign Operations

Abstract: Extant literature on divestment has repeatedly found that firms are likely to divest their poorly performing operations. In this paper, I consider how product market relatedness and geographic market differences in growth, policy stability, and exchange rate volatility can moderate the negative relationship between performance and divestment. Results from a comprehensive panel of U.S. multinational corporations MNCs reveal that conventional arguments about poor performance hold for both related and unrelated firm operations in countries characterized by low growth, policy stability, and exchange rate stability. However, the results also show that there are significant differences across the divestment decisions of firms for their related and unrelated foreign operations in countries characterized by high growth, policy instability, and exchange rate volatility. Although poor performance has been called the most significant predictor of divestment, this paper considers how interactions across multilevel factors influence the divestment decisions of firms and reveals how U.S. MNCs respond to both product and geographic market characteristics when making divestment decisions for their foreign operations.

R&D sensitivity to asset sale proceeds: New evidence on financing constraints and intangible investment

Abstract: We examine the intersection between corporate divestitures of tangible assets and investment in intangible capital (R&D) to provide new tests for the impact financing constraints have on real activity. A positive R&D sensitivity to asset sale proceeds indicates binding financing constraints since cash inflows from tangible asset sales are negatively correlated with productivity shocks and not otherwise connected to intangible investment via non-financial channels. Using a variety of estimation approaches, we document a strong, positive link between cash inflows from fixed asset sales and corporate R&D investment, but only among firms most likely facing binding financing constraints. These results offer robust evidence that financing frictions impact the increasingly important yet understudied intangible corporate investments that drive innovative activity, and they highlight a previously unexplored but potentially valuable use of proceeds from fixed asset divestitures.

Does firm heterogeneity affect foreign market entry and exit symmetrically? Empirical evidence for French firms

Abstract: This paper studies the internationalization behaviour of French companies using more than 330,000 observations for three two-year intervals. We analyse the ‘symmetric’ role of productivity and other major firm attributes to characterize companies that enter into and exit from foreign markets. High levels of productivity are documented to be characteristic of companies deciding to engage in exporting or foreign direct investment (FDI). However, there does not seem to be a significant correlation between productivity and divestment decisions. Moreover, companies with corporate shareholders are more likely to intensify their international engagement and to retain their cross-border activities. Finally, high levels of short-term and long-term debt tend to increase the likelihood of entry into a more intense international engagement.

Home Firm Performance After Foreign Investments and Divestitures

Abstract: An almost undisputed aim for firms in today's globalised world is to operate internationally. Several papers find a positive relationship between foreign direct investment (FDI) and the domestic performance of firms. In this paper, we address the ‘FDI – export’ relationship to better understand this trend. Furthermore, by presenting results on firm's post-divestiture employment growth at home, we are able to provide a more comprehensive view on firm performance after stepping in and out of foreign markets. We apply a propensity score matching technique in combination with a difference-in-difference estimator to analyse the performance dynamics of French firms that either invested abroad or carried out foreign divestitures during the period 2000–2007. FDI has, on average, a positive effect in terms of export share, operating turnover and employment in firm's domestic market. Industry differences reveal that firms in high-tech industries experience a strong increase in their domestic performance, whereas firm performance in low-tech industries increases only moderately in post-investment periods. In contrast, the divestiture impact on the post-divestiture performance is rather negligible.

Are Government-Linked Corporations Crowding out Private Investment in Malaysia?

Abstract: Private investment in Malaysia has been sluggish since the Asian financial crisis. One explanation is that the growing presence of government-linked corporations (GLCs) has been crowding out private investment. For the first time, we provide empirical evidence on the relationship between GLC presence and private investment. We find that when GLCs are dominant in an industry, investment by private firms is significantly negatively impacted. Conversely, when GLCs do not dominate an industry, the impact on private investment is not seen. To revive private investment in Malaysia, government must not only redress its growing fiscal deficit, but also expedite its program of divestment.

Leaving Behind a Turbulent Past: Insights of Divestments from China†

Abstract: Although western multinational enterprises have increasingly gravitated towards the fast- growing Chinese market, many have often faltered and subsequently exited the market Drawing on insight from four international firms (Best Buy, Bertelsman, Lion Nathan and NEC), and the existing literature, we develop an integrative framework on international divestments We go on to demonstrate that none of these exits was by accident, but rather as a result of the interaction of firm-specific and market-based factors Our analysis demonstrates divestment as a growing strategic response to environmental changes in emerging markets We conclude by outlining implications for theory and practice

Models of internationalisation: the New Zealand experience

Abstract: This paper examines the models of internationalisation adopted by 30 firms from New Zealand. Analysis of the internationalisation model is based on five key dimensions: firm sector and size; international market scope; market entry and servicing strategies; and speed of internationalisation. Drivers and constraints to internationalisation are also considered in the analysis. Evaluation of these dimensions over time finds evidence of both traditional ‘stages’ and emergent ‘born (again) global’ models of internationalisation, and reveals that over one third of these firms experience dramatic change to their international activities and resources initiated by divestment or change of ownership. We refer to the alternative internationalisation trajectory adopted by these firms as the ‘transformational’ model of internationalisation. The paper makes a contribution to the extant literature by providing synthesis of New Zealand firm internationalisation and by building on our understanding of how patterns of internationalisation from a small open economy are changing in response to global environmental pressures.

The Wealth of Cape Colony Widows: Inheritance Laws and Investment Responses following male death in the 17th and 18th centuries.

Abstract: Losing a household member is usually negatively associated with welfare, especially if that person is a breadwinner. Coping methods include disposal of assets to generate cash flow, while other households increase their labour supply. This paper considers a specific case in a pre-industrial society, presenting evidence where male mortality was associated with distinct benefits for widows. In the Cape Colony (during the Dutch East India Company occupation), Roman Dutch inheritance laws favoured widows, who were then able to set up households independently of their children. Their sizable inheritances (relative to other heirs) enabled investment in production assets with otherwise prohibitively high fixed costs (in particularly slave labour and vineyards) and resulted in divestment from other non-productive assets. While the mortality shock would presumably have had negative impacts on income and subsistence crop levels, this was not the case in the Cape: instead, reconstructed asset portfolios set...

Undermining the Master Plan: Divestment in Higher Education and Student Experiences.

Abstract: Nationally, state funding to higher education has significantly decreased. Ironically, the trend of state divestment in higher education coincides with federal and state policies geared toward increasing degree completion rates. Through an analysis of qualitative data gathered at California higher education institutions, this paper highlights how cuts to educational funding create academic barriers for students. This can have implications for how students progress toward degree completion and undermine efforts to increase completion rates. Undermining the Master Plan: divestment in Higher education and Student experiences

Are Government-Linked Corporations Crowding out Private Investment in Malaysia?

Abstract: Private investment in Malaysia has been sluggish since the Asian financial crisis. One explanation is that the growing presence of government-linked corporations(GLCs) has been crowding out private investment. For the first time, we provide empirical evidence on the relationship between GLC presence and private investment. We find that when GLCs are dominant in an industry, investment by private firms is significantly negatively impacted. Conversely, when GLCs do not dominate an industry, the impact on private investment is not seen. Sensitivity tests associated with varying the level of the threshold used to determine dominance confirm the robustness of the results. To revive private investment in Malaysia, government must not only redress its growing fiscal deficit, but also expedite its program of divestment.

Selling what you love: divestiture activity in family-controlled firms

Abstract: Based on agency theory, prior studies in divestiture literature argued and found that blockholder ownership functions as a catalyst of divestiture activity. This reasoning, however, assumes that al...

The Politics of the Palestinian BDS Movement

Abstract: This article explores the Palestine-solidarity call and movement advocating for the Boycott, Divestment and Sanctions (BDS) of Israel. I examine the significance of the BDS call made in 2005 by Pal...

Are Losers Picked? An Empirical Analysis of Capacity Divestment and Production Reallocation in the Japanese Cement Industry

Abstract: As demand in an industry shrinks, pressure for the reduction of capacity arises. A key issue is whether plants which, from an efficiency perspective, should reduce output in fact do so. Focusing on the Japanese cement industry, we examine whether less efficient plants reduce capacity. We find that less efficient firms are not more likely to reduce capacity than more efficient firms; however, less efficient plants within a multi-plant firm are more likely to reduce capacity than more efficient plants. In addition, we find that this divestment pattern has led to a substantial drop in industry-wide allocative efficiency.

Managing an IT carve-out at a multi-national enterprise

Abstract: Mergers, acquisitions and divestments, including the carve-outs of business units or parts of them, are standard strategies used by multi-divisional organizations to adjust their business portfolios. Carve-out projects are critically dependent on their management of IT. Systems, which have been integrated in order to deliver seamless and efficient IT operations, must now be pulled apart under demanding time and compliance constraints. In 2007, Delta IT Consulting (DIC), one of France’s biggest IT-service provider, sold one of its three service provider divisions, IT Product Services. This division employed about 3500 employees in 20 countries and previously generated 0.7 billion of DIC’s €3.8 billion revenues. DIC itself is a division of Delta Corporation – a French high-tech company and leading player in a wide array of businesses, industries and countries around the world. This teaching case challenges the reader to analyze and manage the IT carve-out as a critical component within the divestment project. The case includes insights into strategic and organizational challenges of planning and managing an IT carve-out project.

R&D Sensitivity to Asset Sale Proceeds: New Evidence on Financing Constraints and Intangible Investment

Abstract: We examine the intersection between corporate divestitures of tangible assets and investment in intangible capital (R&D) to provide new tests for the impact financing constraints have on real activity. A positive R&D sensitivity to asset sale proceeds indicates binding financing constraints since cash inflows from tangible asset sales are negatively correlated with productivity shocks and not otherwise connected to intangible investment via non-financial channels. Using a variety of estimation approaches, we document a strong, positive link between cash inflows from fixed asset sales and corporate R&D investment, but only among firms most likely facing binding financing constraints. These results offer robust evidence that financing frictions impact the increasingly important yet understudied intangible corporate investments that drive innovative activity, and they highlight a previously unexplored but potentially valuable use of proceeds from fixed asset divestitures.

Manager Divestment in Leveraged Buyouts

Abstract: We examine changes in managers' investment in the firm around leveraged buyouts and find agency costs counter to those described in extant literature. In majority of deals during 1997–2008, managers divested a portion of their pre‐LBO shareholdings while maintaining an ownership stake in the post‐LBO firm. Such divestment opportunities encourage managers to behave in a way that benefits existing shareholders but is costly to new investors. We report a positive relation between management's divestment and pre‐LBO earnings management, market timing, and better buyout pricing. Although managerial divestment also leads to subpar post‐buyout performance, the involvement of private equity mitigates it.

Transformation to an Equitable Socioeconomic Dispensation: Observations and Reflections on South Africa

Abstract: The corporate divestment movement is generally acknowledged as one of the catalysts that transformed South African society from apartheid rule to a democratic social order. However, the dream that ...

Impact of Personal Epistemology, Heuristics and Personal Attributes on Investment Decisions

Abstract: Investors who choose to invest or divest their funds abruptly contribute to the instability of the stock market. In such a volatile market when one investor chooses to invest in companies in spite of unstable prices, others decide not to invest. What individual indifference factors might predict opposing investment decisions such as these? Finance Literature proves that heuristics are significantly related to risky decision making and but there have been no studies to explore whether locus of control plays a role in behavioral finance. The present study has been undertaken to investigate whether locus of control predicts hot-come effect and its converse gambler’s fallacy, when making personal investment decisions. The study has also analyzed investment experience as a possible determinant of hot-outcome or gambler’s fallacy heuristics. The collective effect of an individual’s locus of control and investment experience on investment decisions has been predicted using structural equation modeling. The present study has been done in the Kingdom of Saudi Arabia where 144 investors with prior investment experience and 124 new investors completed the Rotter’s (1954) LOC and the adopted version of an Investment Survey Questionnaire. Results suggest that hot-outcome heuristic, trend length, trend valence and prior investment experience are factors that influence personal financial decision making. Results affirm that novice investors tend to utilize the hot-outcome heuristic regardless of the reference groups, while experienced investors from both reference groups apply gambler’s fallacy heuristics to decide on investments.

A Random Coefficients Logit Analysis of the Counterfactual: A Merger and Divestiture in the Australian Cigarette Industry

Abstract: In this paper we empirically analyse two counterfactual situations facing an antitrust authority following the merger of two of the largest international cigarette companies First we estimate a random coefficients model of the demand for cigarettes The implied elasticity of demand for smoking and implied marginal costs are consistent with the independent estimates available We then use the model to simulate the proposed merger and the partial divestiture that was accepted by the Australian antitrust authority A comparison of the relative price changes predicted by the divestiture simulation with the actual post-divestiture price changes shows that the model is partially successful in predicting the ranking of price changes across companies following the divestiture This suggests structural econometric analysis using a random coefficients model can provide information for antitrust authorities assessing the implications of a potential merger and partial divestiture

Preference Order of Responses to Economic Distress in Italian Listed Firms

Abstract: This paper examines a sample of 72 firms listed on the Italian Stock Exchange between 2007 and 2011 which were in serious economic difficulty. These companies adopted a series of measures to find a way out of the crisis, including management changes, divestment of assets, debt restructuring and the issuing of new shares. The paper aims to verify the existence of a preference order for responses to the economic crisis. Unlike previous research, a methodology has been adopted which analyses the content of the Management Commentary in order to identify both the proposals presented by managers and the measures actually adopted. The result of the analysis shows that the different types of measures to solve the crisis are often proposed and/or realized in a combined manner. Although the existence of a pecking order is not immediately obvious, a preference for management changes seems to emerge, whereas debt renegotiation and the issuing of new shares appear to be used only as secondary responses. Furthermore, based on the results of the logistic regression model, this paper suggests that the reasons for choosing the types of restructuring measures appears to be mainly related to their profitability. Managers of low profitability firms intervene most frequently on the capital structure rather than adopting general management changes and divestment plans. This result is consistent with the Pecking order theory which deals with the hierarchy of funding sources followed by firms.

Asset divestitures and corporate operational returns: an agency theory perspective on Malaysian public-listed companies

Abstract: Divestitures of property, plant and equipment (PPE) assets are a common form of corporate restructuring. However, divesting companies do not necessarily attain improved post-divestiture shareholder wealth. Studies show company characteristics and use of divestiture proceeds may influence divestiture outcomes. This paper attempts to determine these divesting company characteristics and use of proceeds associated with improved shareholder wealth based on the Agency Theory. A sample of Malaysian public-listed companies that divested assets within 2002–2005 is used. Logistic regression segregates these companies based on their industry-adjusted operational returns. Companies that improve post-divestiture operational performance require urgent pay out motives to divest. Companies with deteriorated post-divestiture performance divest without urgent pay out motive and tend to retain proceeds. This suggests agency problem of managerial discretion in asset divestitures. In asset selection, divestitures of ...

Information Markets, Product Markets and Vertical Merger

Abstract: In many markets, firms have the option of advertising at price comparison sites to broaden their market reach. Such sites are often controlled by profit-maximizing “information gatekeepers” charging advertising fees. This paper considers vertical merger between such a monopoly information gatekeeper and a firm in the product market. We find that: (i) If the integrated firm can act as a price leader before independent firms make advertising and pricing decisions, then the merger is profitable. (ii) If the integrated firm cannot move first, then the merger is unprofitable, or divestiture is optimal in the case where the firm has already created the gatekeeper. As a result, the merged entity has an incentive to invest in technologies to support a price leader.

The Impact and Functional Forms of the Major Determinants of Performance of Informal Venture Capitalists’ Investments

Abstract: This paper aims at providing evidence on the activity of business angels, using a unique dataset gathered during the five-year time period 2007-2011 with the support of IBAN (Italian Business Angels Network). In particular, the paper studies how characteristics of the investor and of the invested firm are correlated with returns, thus extending to the informal venture capital market research areas and methodologies widely applied in theoretical contributions dealing with the formal venture capital market. While, our descriptive analysis confirms the growing relevance of the relatively unknown and minimally regulated segment of the capital markets represented by the informal venture capital, given business angels’ capability to fill the equity funding gap between demand for financial resources by start-up companies and supply of early stage equity capital, the aim of the econometric analysis is to investigate the returns on business angels’ investments and their major determinants, making reference to an original set of independent variables (industry, exit strategy, experience, holding period, rejection rate, year of divestiture). Furthermore, while previous empirical studies hypothesized linear relationships between the explanatory variables and the performance of informal venture capitalists’ investments, this work tests different functional forms, both linear and non-linear.The major results achieved through the empirical analysis are the following: 1) differently from previous literature, the relationship between experience and IRR is non-linear and significant; 2) the widely accepted expectation that investments with a short holding period (below three years) earn a lower IRR is confirmed, for the first time, by quantitative data; 3) a new variable, rejection rate, is put into the model and its logarithmic impact on business angels’ performance is positive and significant. Finally, the outcomes of the empirical analysis performed in this study allow the identification of new and concrete insights into possible policy interventions aimed at stimulating the informal venture capital industry and, therefore, entrepreneurship inside the economic system.