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Divestitures in Metal Industry: Motives, Types and Value Creation Effect

Studyanikova, Tatiana LU and Svertoka, Olena LU (2012) BUSP69 20121
Department of Business Administration
Abstract
Purpose: The purpose of this research is to empirically estimate the divestiture announcement effect on the shareholder’s wealth for metal-producing companies using the event study methodology and to analyze firm and industry-specific factors that can affect/cause these announcement effects by implying the cross-sectional analysis.

Data Selection: Research sample contains information regarding divestiture deals in metal industry within the period from 1995 to May 2012, share prices of divesting companies and related market indices quotes. All necessary information was sourced from the Reuters 3000 and DATASTREAM. The final sample consists of 68 divestiture deals of metal-producing companies that spread across different regions in the... (More)
Purpose: The purpose of this research is to empirically estimate the divestiture announcement effect on the shareholder’s wealth for metal-producing companies using the event study methodology and to analyze firm and industry-specific factors that can affect/cause these announcement effects by implying the cross-sectional analysis.

Data Selection: Research sample contains information regarding divestiture deals in metal industry within the period from 1995 to May 2012, share prices of divesting companies and related market indices quotes. All necessary information was sourced from the Reuters 3000 and DATASTREAM. The final sample consists of 68 divestiture deals of metal-producing companies that spread across different regions in the world.

Methodology: For the given research the event study methodology is applied to investigate the divestiture announcement effect on the shareholders’ wealth gains. For this purpose the market model is used to determine predicted returns in the event window. Model coefficients are estimated using OLS method. Next, cross-sectional analysis is used to identify the most significant factors that affect cumulative abnormal returns.

Conclusion: Shareholders within metal industry gain considerably from the announcement of the divestitures independently of which region (developed or developing) the seller company operates at. The cross-sectional analysis revealed that such significant positive announcement effects for the longer event windows are mainly caused due to firm-specific factors, while for shorter event windows, industry-specific ones appeared to be significant as well. (Less)
Please use this url to cite or link to this publication:
@misc{3128881,
  abstract     = {Purpose: The purpose of this research is to empirically estimate the divestiture announcement effect on the shareholder’s wealth for metal-producing companies using the event study methodology and to analyze firm and industry-specific factors that can affect/cause these announcement effects by implying the cross-sectional analysis. 

Data Selection: Research sample contains information regarding divestiture deals in metal industry within the period from 1995 to May 2012, share prices of divesting companies and related market indices quotes. All necessary information was sourced from the Reuters 3000 and DATASTREAM. The final sample consists of 68 divestiture deals of metal-producing companies that spread across different regions in the world.

Methodology: For the given research the event study methodology is applied to investigate the divestiture announcement effect on the shareholders’ wealth gains. For this purpose the market model is used to determine predicted returns in the event window. Model coefficients are estimated using OLS method. Next, cross-sectional analysis is used to identify the most significant factors that affect cumulative abnormal returns.

Conclusion: Shareholders within metal industry gain considerably from the announcement of the divestitures independently of which region (developed or developing) the seller company operates at. The cross-sectional analysis revealed that such significant positive announcement effects for the longer event windows are mainly caused due to firm-specific factors, while for shorter event windows, industry-specific ones appeared to be significant as well.},
  author       = {Studyanikova, Tatiana and Svertoka, Olena},
  keyword      = {Mergers and acquisitions,divestitures,sell off,asset sell off,spin off,carve- out,management buyout,event study method,market model,cross-sectional model,abnormal return,cumulative abnormal return,event window,announcement effect,shareholders’ wealth gain,firm-specific cross-sectional factors,industry-specific cross-sectional factors,metal industry.},
  language     = {eng},
  note         = {Student Paper},
  title        = {Divestitures in Metal Industry: Motives, Types and Value Creation Effect},
  year         = {2012},
}