Why discontinue operations? Interrelated elements of the corporate focus hypothesis

Purpose The purpose of this paper is to reexamine the corporate focus hypothesis to establish the characteristics of firms that discontinue operations. The authors concentrate on four interrelated elements of the hypothesis, diversification, performance, financial constraint and market-based risk measures. The authors also examine whether firms reporting positive- or negative-valued discontinued operations have different characteristics. Design/methodology/approach Analyzing discontinued operations provides a broad sample of strategically important exit decisions using a variety of different disposal methods. The authors use logistic regression models to explore whether the elements of the corporate focus hypotheses, and interactions between them, explain decisions to discontinue operations, and also the differences between firms making negative- and positive-valued announcements. Findings Firms that discontinue operations are more diverse, with weak operating performance, higher financial constraints and perform poorly in financial markets. Interrelationships between these factors strongly affect exit decisions. Companies reporting negative-valued discontinued operations are smaller, make lower capital investments and face greater cash constraints and market risk. Those announcing positive-valued discontinuations are larger and make higher payouts and capital expenditures. Their overall performance is weaker than for control firms, but clearly superior to companies discontinuing negative-valued operations. Originality/value Discounted operations represent a wide range of exit decisions. They provide a much larger sample than most previous studies of divestitures. The authors include β, the Sharpe ratio, cash holdings, payouts to shareholders, capital expenditures and also cross-product terms between the elements of the corporate focus hypothesis, all of which have received little attention in prior research. There are significant differences between firms announcing positive and negative-valued discontinued operations.

A Bright Stinginess

Even as there were significant shifts in understandings of waste and waste consciousness in the early 1970s, the desires and values which had been shaped by growing material and economic prosperity endured. A new, “bright kechi (stinginess)” was not to sacrifice comfort, mean going without, compromise standards of living, or cause hardship. The centrality of consumption to daily life, corporate focus on the maximization of profit, influence of marketing and advertising, and longing for convenience and comfort persisted. The calls to reign in excess, to appreciate what had been attained, and to preserve middle-class lifestyles, revealed the depth and tenacity of the hopes and expectations forged in the making of a wealthy Japan.

Christensen updates disruption theory

Purpose – Recently, observers of the battle between incumbents and challengers have turned the field of disruptive innovation theory into contested territory. What strategies work for defenders and attackers? Design/methodology/approach – For an update the author asked the opinion of the world’s foremost authority, Harvard professor Clayton Christensen. Findings – According to Christensen, “We discovered that there are three types of innovations, only two of which we had caught in the [original] theory of disruption. Practical implications – The only permanent way out of the innovator’s dilemma is to change the game being played and adopt a new corporate focus in which innovation is a necessity, not an option. Originality/value – The article updates and broadens disruption theory. Disruption, as Christensen defines it, is a theory of competitive response.

Managerial Incentives And Changes In Corporate Focus

<p class="MsoTitle" style="text-align: justify; line-height: normal; margin: 0in 0.5in 0pt;"><span style="font-size: 10pt; font-weight: normal; mso-bidi-font-size: 11.0pt;"><span style="font-family: Times New Roman;">We examine how Chief Executive Officer (CEO) equity ownership, CEO tenure, and the percentage of options in CEO annual compensation are related to decisions regarding changes in corporate focus.<span style="mso-spacerun: yes;">&nbsp; </span>We document that the CEOs whose companies change their level of corporate focus have significant differences from CEOs whose firms do not change focus.<span style="mso-spacerun: yes;">&nbsp; </span>However, we find no differences in the characteristics of CEOs who increase their firm&rsquo;s level of diversification and the CEOs who decrease their firm&rsquo;s level of diversification.<span style="mso-spacerun: yes;">&nbsp; </span>Firm characteristics, such as size or whether the firm sells at a premium or discount to its peers, are better predictors of changes in corporate focus than CEO characteristics. Overall, we find no evidence that changes in diversification are related to self-serving managers attempting to maximize their own wealth.</span></span></p>