Study On Divestiture Decision Making For Corporate Divisions

Divesting division has become an important way for corporation to get rid of inefficient units, exit non-core businesses, select strategic positions, throw off financial difficulties and bankruptcy, improve management, and optimize organizational structures. However, divesting some divisions is easy, but some, especially the cost divisions that do not generate profits, are difficult to divest, and there are the divisions that are just partly divested. Why do these phenomena occur? What is the condition of divesting a division or of it existing within the corporation? The researches of these questions can help a corporation identify its redundant organization and inefficient divisions, have a quantitative understanding of the corporate organizational structure, resource allocation theory, theory of division of labor and choice of pricing mechanism. Based on efficiency, this dissertation focuses on the conditions of the market-substitute type divestiture and incomplete divestiture of the division and task of the corporation. The main research contents are as follows:Models of the division and corporation are built, and each efficiency is defined.The dissertation divides the cost of division or corporation into both raw material resource cost and control resource cost. The division model is a formula that the division’s actual profit is equal to its revenues less its costs of the raw material resources and control resources it processe and the control resources it consume. The corporate model is an expression that corporate actual profit is equal to the corporate incomes less its costs of both processed raw materials resources and consumed control resources. The efficiency of the division or the corporation is defined as a ratio of the actual profit of the division or the corporation to each control costs consumed in a period.The divestiture of corporate division is defined from the perspective of distributing division ownership. This ownership consists of several fundamental rights,and each of these fundamental rights can be further divided into some parts.Thus, it is defined as a division divestiture that some or all of the division ownership are separated out from the corporation. That contains at least one of the following three:(1) at least one of the fundamental rights is separated from the ownership,(2) the ownership at least have one fundamental right whose a part is segmentalized out,(3) some or all of the division’s shares are sold. Separating a part or all of the ownership from the corporation is called incomplete divestiture or complete one.The divestiture criterion of a division is structured,and difficult degree of divestiture is defined.The dissertation proposes the divestiture boundary equation and divestiture function of the division,and from them the divestiture criterion is established:When the function is less than zero, the division should be divested; when the function is greater than zero, the division should be retained; and when the function is equal to zero,divesting and retaining the division have the same corporate efficiency. The difficult degree of divestiture is equal to the function,and when it is more than zero, the larger its value, the more difficult to divest division; when it is less than zero, the smaller its value, the more easily to divest division.In addition, the uncertainty of the internal transaction pricing of corporation and its division does not affect the divestiture criterion.Efficient allocation condition of resource a corporation needs or intermediate product produced by a corporation is derived. When the scarcity degree of the resource is relatively high, it should be supplied by the division, and when the scarcity degree is relatively low, it should be provided by the market; When the scarcity degree of the intermediate product is relatively low, this product should be allocated within the corporation, and when its scarcity degree is relatively high, it should be directly sold in the market. The divestiture boundary equation is a divide of the scarcity degree being high or low,and this divide is a boundary of efficient allocation for the resource or the intermediate product.A boundary of two pricing mechanisms is presented in the dissertation. When the divestiture function is greater than zero, pricing of the resource provided by the division should be completed by the organizational power, or pricing of the intermediate product should be done by the market;When the function is less than zero, pricing of the resource should be done by the market,or pricing of the intermediate product should be done by the organizational power. The divestiture boundary equation quantificationally determines a frontier of the two pricing mechanisms:organizational power and market.According to the scarcity degree, the resource whose scarcity degree is high should be allocated by the organizational power, and the resource whose scarcity degree is low should be allocated by the market; the intermediate product whose scarcity degree is low should be allocated by the organizational power,and the intermediate product whose scarcity degree is high should be allocated by the market.The condition of incomplete divestiture of a division is founded. The dissertation proposes the division’s incomplete divestiture function and founds the incomplete divestiture condition:When the divestiture condition of the division is not satisfied, the incomplete divestiture function is greater than zero and the derivative of the function with respect to ratio of the shares held by the corporation is less than or equal to zero; When the divestiture condition is satisfied, there is the division shares’ratio that makes the function be greater than zero.The model and divestiture condition of corporate task are established. It is described for the task model that the task’s actual profit is equal to its revenues minus the costs of the raw material resources and control resources integrated by the task and the control resources the task consumes. The dissertation proposes the divestiture boundary equation and divestiture function of the corporation-need type task and market-need type existing task,and builds their divestiture conditions:the former’s divestiture function is less than zero and the latter’s divestiture function is greater than zero.Otherwise,under not satisfying the divestiture condition of the task,the dissertation sets up also the incomplete divestiture condition of the corporation-need type existing tasks:its divestiture function is greater than zero and the derivative of the function with respect to ratio of the task capital apportionment by the corporation is less than or equal to zero.The divestiture condition of divisions set is discussed. The divisions set is a group of divisions which are related to the same nature, or an event. It can be obtained by the organizational partition or the extraction,and seen as a division to establish its divestiture condition.The dissertation finally discusses the choice of divesting the division that engages in teaching and training in a large state-owned company. The divestiture condition of the division is applied to choose the access to knowledge in two way:market buy and own school, and the condition of incomplete divestiture is used for this case.