
Management Papers
Document Type
Journal Article
Date of this Version
5-2014
Publication Source
Organization Science
Volume
25
Issue
3
Start Page
815
Last Page
832
DOI
10.1287/orsc.2013.0873
Abstract
This paper investigates “legacy divestitures,” the sale or spinoff of a company’s original, or “legacy,” business. The central tension considered in this work is that the historical presence of a firm’s legacy business should simultaneously make that unit very interdependent with the company’s remaining operations and make the firm’s managers highly likely to take those same interdependencies for granted. Consistent with these predictions, the post-divestiture operating performance of firms that divest their legacy businesses falls short of that of firms that retain comparable legacy units, especially when the divested unit operates in the same industry as others of the divesting firm’s businesses. Newer chief executive officers (CEOs) are more likely to undertake legacy divestitures than their longer-tenured peers, and the most recently appointed CEOs undertake the most costly legacy divestitures. In summary, this paper provides insights into how historical interdependencies create value in diversified firms, as well as the decision-making processes that managers follow in overseeing these companies.
Keywords
legacy divestitures, diversification, interdependencies, tacit knowledge, corporate strategy
Recommended Citation
Feldman, E. R. (2014). Legacy Divestitures: Motives and Implications. Organization Science, 25 (3), 815-832. http://dx.doi.org/10.1287/orsc.2013.0873
Date Posted: 27 November 2017
This document has been peer reviewed.