NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Asset Liquidity and Segment Divestitures

Frederik P. Schlingemann, Rene M. Stulz, Ralph A. Walkling

NBER Working Paper No. 7873
Issued in September 2000
NBER Program(s):   AP   CF

We investigate a sample of firms whose number of reported segments falls by one or more for the first time in their reporting history. The firms in our sample have a significantly larger diversification discount, underperform, and underinvest relative to comparable firms. Firms are more likely to divest segments from industries with a more liquid market for corporate assets, segments unrelated to the core activities of the firm, poorly performing segments, and small segments. The liquidity of the market for corporate assets plays an important role in explaining why some firms divest assets while others stop reporting them without divesting them, and why some firms divest core segments while others divest unrelated segments.

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Published: Schlingemann, Frederik P., Rene M. Stulz and Ralph A. Walkling. "Divestitures And The Liquidity Of The Market For Corporate Assets," Journal of Financial Economics, 2002, v64(1,Apr), 117-144.

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