Lee, Younjung and Han, Tian (2023) The fire sale enigma: revealing long-term benefits of divestiture amid financial turmoil. In: 023 International Conference in Finance, Banking and Accounting (ICFBA), 8th - 9th September 2023, Montpellier Business School. (Unpublished)

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Abstract

This study examines the impact of divestiture on financially distressed firms during the 2008 global financial crisis, with a focus on its role in promoting long-term performance recovery. In contrast to the prevailing fire sale theory, which posits that divestiture in periods of economic crisis leads to value destruction, our results reveal a positive association between divesting firms and their long-term performance recovery. Over a 3-year post-divestiture period, firms significantly improve their long-term operating performance compared to non-divesting benchmarks, by easing financial constraints and maintaining pre-crisis investment levels. Moreover, firms with divestiture outperform those using other restructuring strategies that prioritize short-term cash flow enhancements and cost-cutting measures. Our findings provide valuable insights into the long-term implications of corporate divestiture during economic downturns.

Item Type:	Conference or Conference Paper (Paper)
Uncontrolled Keywords:	divestiture; financial distress; economic crises; fire sale
Subjects:	H Social Sciences > HB Economic Theory H Social Sciences > HC Economic History and Conditions H Social Sciences > HG Finance
Faculty / School / Research Centre / Research Group:	Faculty of Business
Related URLs:	Organisation
Last Modified:	24 Nov 2023 10:28
URI:	http://gala.gre.ac.uk/id/eprint/42718

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