STAKEHOLDER ORIENTATION AND DIVESTITURE ACTIVITY

We conceptualize divestitures as a costly alternative to the internal resolution of conflicts among stakeholders, albeit one that avoids the more costly liquidation of the firm. In firms that have lower stakeholder orientation (defined as the extent to which management focuses attention on and integrates the interests of multiple stakeholders in its decision making), divestitures will be less costly than the internal resolution of stakeholder conflicts, while the opposite will be true in firms that have higher stakeholder orientation. Consistent with this argument, we document a negative relationship between stakeholder orientation and divestiture activity, using a unique dataset of 909 U.S.-based, publicly listed firms from 2002 to 2015. This negative relationship is more pronounced for selloffs than for spinoffs, for selloffs of businesses that are unrelated to or located far from the divesting firm, and for selloffs to acquirers that are not alliance partners of divesting firms. The core contribution of this paper is to treat different types of divestitures as increasingly costly responses to conflicts among stakeholders, thereby populating the theoretical middle ground between negotiated adaptations of firms' governance structures and total firm failure. In so doing, this paper contributes to research at the intersection of stakeholder theory and corporate strategy.