Why Did They Do It? A Taxonomy of Divestiture Motivations

Students

2020
Wharton

Faculty

Associate Professor of Management

Project Summary

It is my honor to be able to research on corporate divestitures under the guidance of Professor Feldman over the course of ten weeks this past summer. The main goal of my project was to develop a comprehensive taxonomy of companies’ motivations for divestitures.  

Learning how divestitures account for close to 40% of corporate deal-making from Professor Feldman’s project description, I was astonished at how divestitures seemed to have received much less public attention than acquisitions, and became interested in finding more about this relatively understudied corporate strategy. I am truly grateful for this valuable opportunity to not only learn more about this subject myself, but also be part of Professor Feldman’s effort in enhancing public understanding towards divestitures.  

Through my research experience, I became more efficient with collecting, synthesizing, and analyzing public media sources. Working from a database with approximately 4000 divestitures transactions that took place in the United States from 2009 to 2015, I identified and recorded the major driver of each transaction from studying major media news sources such as Wall Street Journal, Bloomberg, Financial Times, and BusinessWeek, thereby generating key implications. I learnt that apart from better known financial reasons such as to eliminate unprofitable businesses or to improve liquidity, companies actually undertake divestitures for a far wider range of reasons, e.g. to focus on core competency from a strategic perspective or to reduce organizational conflicts of interest from a management perspective.

Participating in this research project has strengthened my interest in corporate strategy, and has motivated me to study more closely how companies strategize their growth and increase shareholder value through portfolio restructuring in real life. Entering my second year at Penn and Wharton, this experience has surely reinforced my intent to pursue a concentration in Finance. It has also inspired me to always keep an inquisitive mind, looking out for the motivations behind different events taking place in the financial world in order to uncover the true meanings behind each corporate deal.