Corporate Reorganizations

The impact of executive cognitive bases and values on corporate strategic change was examined in a longitudinal study of the computer hardware industry. Corporate strategic change was separated into pattern and magnitude dimensions as suggested by Ginsberg (1988). These dimensions complement the logic of Tushman and Romanelli (1985) who suggest that organizations proceed through long periods of stability or adjustment, punctuated by periods of metamorphic change or reorientation. I proposed that executive cognitive bases and values would be associated with strategic reorientation but not strategic adjustment since executive perceptions and responses are the internal driving forces that direct and redirect organizations (Romanelli & Tushman, 1988). Panel data analysis techniques were used to test the hypotheses developed in this study. Corporate strategic reorientation and adjustment were operationalized by changes in unrelated and related diversification, and changes in between-stage and within-stage vertical integration, respectively. The mean organization tenure and functional background heterogeneity of top management teams were used as proxies for executive cognitive bases and values. Results provided overall support for the hypotheses. Mean organization tenure was negatively related to unrelated diversification change, while neither mean organization tenure nor functional background heterogeneity were associated with related diversification change. Functional background heterogeneity was positively related to between-stage vertical integration change, however, contrary to expectations, it was negatively related to within-stage vertical integration change. These findings confirm and extend the literature which relates managerial characteristics to strategic change.

In essay 1 (Investment bank role in acquisition of private targets), using a sample of private targets from January 1992 to December 2010, I find that special information asymmetry when bidders prusue private targets alters the factors used by bidders and targets to decide whether to hire an investment bank.... It appears that the investment bank has a significant impact on the outcome of the acquisition of a private target. In essay 2 (Investment bank role in asset sell-off transactions), I also find that special information asymmetry when a buyer pursues divested assets alters the factors used by the buyer and seller to decide whether to hire an investment bank. ...I find that when the seller empoloys an investment bank, the increase in unsystematic and total risk of the buyer is greater than in cases when the seller does not use an investment bank.

This essay focuses on firms that have publicly issued announcements that they were seeking a buyer. Managers of the firms in this unique sample display an idiosyncratic behavior by expressing a willingness to relinquish private benefits of control. The essay investigates the possible factors that may lead managers of these firms to issue such announcements, the effects of issuing "seeking buyer" announcements on shareholders' wealth, and the probability that such firms are later acquired. Results indicate that firms in poor financial condition, as well as larger and more homogeneous firms are more likely to issue a "seeking buyer" announcement. The interpretation of such results is that firms resort to issuing the announcement when a sale seems to be the means for survival, and when the sale is less likely without such an aggressive sale strategy. The announcements have a positive impact on shareholders' wealth, though they do not increase the probability of an acquisition. Essay 2: Shifts in risk as the result of corporate divestitures. The second essay investigates the effect of corporate divestitures on risk, while previous research focused exclusively on changes in shareholders' wealth. Specifically, this study explores changes in systematic, total and idiosyncratic risk as the result of spin-offs, carve-outs and asset sales. Additionally, I study factors that may explain the variation in risk changes as the result of the three types of divestitures. I document an increase in total and idiosyncratic risk for all types of divestitures, an increase in one of the measures of systematic risk for spin-offs and carve-outs and a reduction in systematic risk for asset sales. Change in risk is negatively correlated with the degree of focusing as the result of divestitures, and positively correlated with change in financial leverage.