Emilie Feldman, Strategy DBA
Dissertation Chair: Prof. Cynthia Montgomery
Selling your Heritage: Legacy Divestitures and the Hidden Costs of Corporate Renewal
My dissertation investigates companies which diversify away from and subsequently divest their historical cores, or "legacy" businesses. Instances of this behavior are widespread throughout American industry: for example, Fortune Brands, originally a cigarette company (American Tobacco), diversified into office supply and recreational products and then sold its tobacco business, and Whitman Co., originally a railroad (the Illinois Central Gulf), diversified widely into food products, refrigeration equipment, soda bottling, and automotive services, following which it divested the railroad. In spite of the prevalence of this phenomenon, however, the extensive literature on corporate divestitures has not yet explored it.
In my job market paper, I find that firms appear to divest their legacy businesses within the context of larger efforts to reshape their identities. I find that operating performance deteriorates in the years following legacy divestitures, and this decline appears to be linked to a loss of intangible resources embedded in the legacy businesses, as well as to the disruption of synergies between legacy businesses and other units within the divesting firms. These results illustrate the challenges associated with divestitures that impact firms' resources in unexpected ways and shed light on the difficulties firms may experience when they attempt to overhaul their identities.
