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The divestiture of acquired subunits: A resource dependence approach

Authors


Jun Xia, College of Business and Economics, West Virginia University, 1601 University Avenue, Morgantown, WV 26 506-6025, U.S.A. E-mail: jun.xia@mail.wvu.edu

Abstract

Resource dependence theory has been widely applied to explain interindustry acquisitions, but little is known about how external and internal dependence conditions affect the divestiture of formerly acquired subunits. We argue that subunit divestiture may be a strategic response to mutual dependence and subunit power following acquisition. Our results, based on a sample of divested subunits by U.S. public firms, show that mutual dependence and increased subunit power both reduce the hazard of subunit divestiture. However, the negative effect of mutual dependence diminishes to the extent that subunit power increases, suggesting that increased subunit power may shift away from the mutual-dependence logic. We discuss the implications of these findings to advance the theory of interindustry divestiture. Copyright © 2012 John Wiley & Sons, Ltd.

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