Document Type

Article

Original Publication Date

2016

Journal/Book/Conference Title

The Financial Review

Volume

52

Issue

4

First Page

559

Last Page

578

DOI of Original Publication

10.1111/fire.12112

Comments

Originally published at http://doi.org/10.1111/fire.12112.

Date of Submission

January 2017

Abstract

Nanda and Narayanan (1999) show that the information asymmetry between the managers and market participants regarding divisional cash flows helps explain the value creation on asset sales. Based on their theoretical framework, the divisional informativeness gap hypothesis predicts that the announcement-period return increases with the difference in cash-flow informativeness of retained and divested divisions prior to the divestiture. Our results, using industry-average earnings response coefficient as a proxy for cash-flow informativeness of a division, support this prediction. The effect is stronger when a conglomerate retains the division with relatively greater growth opportunities.

Rights

© 2016 The Eastern Finance Association

Is Part Of

VCU Economics Publications

Included in

Economics Commons

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