Spin-Offs or Sell-Offs : The Dynamics of Corporate Divestitures

This study develops a real options model of corporate divestitures wherein firms choose the optimal timing and conditions for a spin-off or sell-off. [A1] The divestiture timing has an inverse relationship with divestiture costs and a positive relationship with divestiture benefits. The choice of divestment method is influenced by the vendor’s bargaining power during the sale. When bargaining power is weak, an increase in bargaining power may reduce the incentive to employ the sell-off strategy. However, when bargaining power exceeds a certain threshold, increasing bargaining power will strengthen the incentive to divest with sell-offs.real options model