Adding by Subtracting: The Impact of Performance Feedback on Resource Reconfiguration Through Divestitures. < Back
Most research on business divestitures has focused on how weak firms sell off pieces of their businesses in order to retrench. This paper proposes that, while weak firms clearly do use divestitures as part of their efforts to survive, strong firms also use divestitures as a means to maintain their superior performance. This paper draws from performance feedback theory and the resource-based view of the firm and its related dynamic capabilities arguments to study the drivers of firms divestiture activity. The study uses a new longitudinal segment-level dataset of 117 firms operating in the global pharmaceutical industry between 1999 and 2009. The work contributes to the divestiture literature and, more generally, to performance feedback and resource based theories, showing that both weak and strong performance affect the extent and nature of resource reconfiguration through divestiture. At the same time, the drivers of divestiture differ strikingly among weak and strong firms: weak firms are affected primarily through direct financial pressures with most impact on full divestitures, while strong firms respond to more general aspirational pressures with most impact on more fine-grained partial divestitures.
Speaker: Elena Vidal, Duke University
Coordinators: Prof. Pascual Berrone, Prof. Fabrizio Ferraro, Prof. Marco Tortoriello