Asset divestiture following horizontal acquisitions: A dynamic view

Business acquisition, resource redeployment, and asset divestiture are elem ents of a dynamic process in which firms change their businesses by recombi ning internal and external resources. Analyzing 253 horizontal acquisitions , we show that post-acquisition resource redeployment leads to asset divest iture from the business that receives the redeployed resources, but not fro m the business that contributes the new resources. Consistent with scale ec onomies rationales, we find that strategic similarity also leads to greater asset divestiture from the target firms. Many theoretical perspectives are skeptical about the positive rationale for acquisitions and many of these believe that asset divestiture is evidence of acquisition failure. Our argu ments and analysis help refine the accepted wisdom. In particular, the patt ern of resource redeployment and asset divestiture in our analysis suggests that acquisitions provide a means of reconfiguring the structure of resour ces within firms and that asset divestiture is a logical consequence of thi s reconfiguration process. Copyright (C) 2001 John Wiley & Sons, Ltd.