Core Focus: Divesting and Long-Term Performance: A Study on the Swedish Market 1996-2005

Abstract: I have studied 41 Swedish firms that have divested some part of their operation between 1995 and 2005. To each divesting firm I have matched a non divesting firm based on size and market-to-book. For each pair I have calculated any abnormal or excess return for both operational performance and stock price performance to see if there are any general patterns. I find a statistically significant underperformance on operational profitability of divesting firms compared to non divesting firms for the two and three years following the divestment. These results show an opposite view to previous research. In contrast to my results on operational profitability, and in line with previous research, I find a statistically significant outperformance on the market-to-book ratio for divesting firms compared to non divesting firms three years following the divestment.