The Drivers and Implications of Business Divestiture - AnApplication and Extension of Prior Findings

The purpose of this study is to extend the current understanding of business divestiture by investigating its potential for triggering strategic reorientation. A divestiture involving strategic reorientation is here denoted as a strategic business exit, otherwise it is a status quopreservingbusiness exit. The motives for divestiture specified in prior studies are mainly associated with firm financial performance and corporate strategy. Most studies investigate their impact on divestiture separately though both may interact. This study contributes to research by, first, distinguishing divestiture types, and, second, empirically testing the influence of performance and strategy both separately and in conjunction on the choicebetween strategic and status quo-preserving business exit with secondary data on 213 divestitures during 1999-2004 which were undertaken by a cross-industry sample of 91 firmslisted in the German CDAX. The findings mainly indicate that firm financial performance is a stronger predictor of strategic business exit than corporate strategy.