Valuation Effects of Foreign Divestitures

This study examines the market's reaction to foreign divestitures and explains why reactions vary across firms. A significant positive reaction is observed, which is similar in magniture to that observed for a matched control sample of domestic divestitures. The size of the reaction is positively realated to the relative size of the divested unit, and a more favorable reaction is observed when the divestiture is for strategic reorganization, to raise cash, and when the foreign unit is in an industralized host country. The results of this study hold important managerial implications