Research On The Relationship Between Institutional Environment, Corporate Governance And Divestitures

To cope with the rapid changes in the external business environment, companies need to constantly adjust its business portfolios to improve its operational efficiency Since the1980s, divestitures gradually become an important way of corporate restructuring, it also has been widely used in China’s listed companies. While both the practice and theory support that appropriate divestitures can improve company’s innovation capacity and long-term performance, actually business managers are still reluctant to reduce business sector through divestitures. In recent years, the impact of corporate governance on strategic decisions gradually being valued by scholars, the core function of corporate governance also changed from the traditional supervise and balance to scientific decision making. External institutional environment plays an important role in corporate governance mechanism in such an emerging market like China, where the progress of marketalization does not balance and the bad external institutional environment are its main feature. In China’s special institutional environment, the research of corporate governance’s impact on divestiture decision making need to expand.Based on the above analysis, this study will mainly focus on the two questions:"The relationship between corporate governance and asset divestitures" and "institutional environment’s impact on the relationship between corporate governance and divestitures". In response to these questions, firstly, we review the literatures about the basic theory of divestitures, divestiture decisions, institutional environment and corporate governance, based on the theoretical analysis we put forward the hypothesis of this paper; then201divesting samples and228no-divesting samples between2007-2011are selected. Descriptive statistical analysis, correlation analysis and logistic regression analysis were used to test the hypothesis. The main conclusions this paper obtains as follows:First, the largest shareholder hindered divestiture’s occurrence, other shareholders’power to balance the largest shareholder is poor; Second, manager turnover have a positive impact on the occurrence of divestiture; Third, the institutional environment will weaken the largest shareholder’s resistance of divestitures, which play a positive moderating effect.The innovation of this paper is that we introduced institutional environmental factors when we study the corporate governance’s impact on divestitures. This paper trying to explore the relationship between corporate governance and divestitures under specific institutional environment in China, then to expand and fulfill the research of corporate governance and divestitures areas. Meanwhile, based on the conclusions of this study, we put some suggestions on construction of marketization and improvement of corporate governance.