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What Constrains or Facilitates Divestitures of Formerly Acquired Firms? The Effects of Organizational Inertia

Katsuhiko Shimizu

Department of Management, University of Texas at San Antonio, 6900 North Loop 1604 West, San Antonio, TX 78249-0634, kshimizu{at}utsa.edu

Michael A. Hitt

Department of Management, Texas A&M University, College Station, TX 77843-4221

This study examined behavioral explanations for the divestitures of formerly acquired units, particularly organizational inertia. It was argued that characteristics of parent firms and divested units reduce the likelihood of divesting a poorly performing unit. Conversely, it was also argued that change of key personnel and effective governance mechanisms increase the likelihood of such divestitures. Importantly, the results show that with age and size combined, appointment of new outside directors and divestiture experience (among other variables) moderated the effects on the likelihood of firms divesting units they had previously acquired. Implications for future theory development and management practice are also discussed.

Key Words: mergers and acquisitions • divestiture • organizational inertia • case control design

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Journal of Management, Vol. 31, No. 1, 50-72 (2005)
DOI: 10.1177/0149206304271381
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