Empirical Study On The Market Performance Of China’s Listed Firms’ Divestitures

Divestiture is a kind of contracting capital operation method of companies, which is widely used in industrial restructuring and optimizing resource allocation, etc. On the capital market in developed countries, divestiture is frequently used in corporate restructures. By empirical research on the market performance of divestiture among China’s listed companies, this paper was aim to test the empirical conclusion that whether the divestiture can improve the market performance of listed companies, in order to help people fully understand its importance during the development of a company and notice problems existing in the operating process of divestiture, and to provide experience and reference during the restructuring decision.On the whole, this paper was divided into two parts. The first part was about basic theory, generalizing the relevant research results on the market performance of divestiture home and abroad. At the same time, it stated divestiture related theories of motivation, all which had established a foundation for empirical research later.The second part was empirical research, also the major body. Before the empirical research, this paper introduced the situation of China’s listed companies, which gave a detailed description on overview of China’s listed companies, time distribution, industrial distribution, and relevant transactions, etc. besides, it also described briefly on the motivation of divestitures. During the empirical research, this paper took58listed companies, which listed and post an announcement on divestiture in Shanghai Stock Exchange or Shenzhen Stock Exchange from2005to2010as samples. Firstly, it adopted event study method to analyze the market performance of divestiture among China’s listed companies, and then used multi-factor line regression method to take a more closely analysis on itAccording to empirical research, several major conclusions could be drawn as follows:among China’s listed companies, both the number and scale of divestitures are keeping increasing, and the year-end effect exists. Divestiture announcements can bring significant positive abnormal returns. That means a majority of investors are optimistic about the divestitures, and divestiture announcements can increase shareholders wealth. However, during the transaction process of divestiture, leakage of information in advance and internal transactions may exist.Enterprise scale, ownership concentration, divestiture scale, earning power and financial situation are most important factors on the market performance of divestiture for China’s listed companies.