Ownership structure and divestiture decisions: Evidence from Australian firms

Divestitures create shareholder value by helping firms to optimize their portfolio of assets. However, firms may forego value enhancing divestitures because of agency problems. More specifically, large controlling shareholders may prefer to retain the assets in order to extract private benefits of control at the expense of minority shareholders. In this paper, we explore the role that other blockholders play in constraining the largest shareholder's influence. The results indicate that divestiture activity decreases with the ownership of the largest shareholder. The presence of another significant blockholder appears to curb this negative bias towards divestitures. Our findings provide an economic rationale for the higher performance of firms characterized by more balanced ownership structures. Involvement of family owners also appears to provide similar benefits. •Explore the influence of ownership structures on divestiture decisions•Propensity to divest decreases with ownership of largest shareholder.•Consistent with largest shareholder extracting private benefits of control•Presence of other blockholders mitigates largest shareholder's influence.•Confirms positive effect of multiple shareholders on firm performance