Junior Management Science
I study the underlying decision factors of corporate business entity divestments. Specifically, I address four questions. Firstly, what are decision factors concerning the business entity (divestment object) itself that influence divestment? I conclude from previous research that negative entity performance, insufficient benefits from the interplay between entities (whether between related or unrelated entities) and entity inferiority to marketplace alternatives (whether concerning costs or market opportunities) each considerably increases business entity divestment likelihood. Secondly, what are the psychological factors within decision-makers that influence divestment? I show from previous research that decision-makers’ familiarity with the entity’s business segment may distort a decision-maker’s entity assessment, thus biasing divestment decisions; escalation of commitment may lead to retaining failing projects despite being aware of their poor performance; and the managerial incentive to conceal investment mistakes may at least postpone divestment as a result of self-interests.
Thirdly, what factors in the organizational context influence divestment? I find from previous research that negative firm performance and path dependence of preceding divestments increase general propensity to divest, whereas units that are perceived to be essential to organizational image and identity are more reluctantly exited.
Fourthly, which external stakeholders are important influencing factors in divestment? I indicate from previous research that the media, political entities, and blockholders may pressure decision-makers significantly and sway divestment decisions.
Keywords: Corporate Divestment, Decision Factors, Psychological Factors, Organizational Factors, External Factors