We examine the impact of familiarity with business segments on CEOs’ divestment decisions. We find CEOs to be less likely to divest assets from familiar than from non-familiar segments. We attribute this effect to CEOs’ comparative information advantage relative to familiar segments. Reflecting this information advantage, we document the familiarity effect to be particularly strong in R&D intensive industries. We further find the familiarity effect to be most pronounced for longer-tenured CEOs who have built up sufficient political power over the course of several years in office to enable implementation of their preferred choices. We also document the value effects of divestments and show familiarity to affect returns on divestment announcements.
[version: August 2013]

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Erasmus Research Institute of Management

Ang, J., de Jong, A., & van der Poel, M. (2012). Does CEOs' familiarity with business segments affect their divestment decisions?. Retrieved from http://hdl.handle.net/1765/31627