Research On The Impact Of Asset Divesture On Firm Performance

With the vigorous development of China's economy,enterprises no longer pursue the expansion of scale but begin to pay attention to their own profitability.Asset divestiture provides an effective way for companies to sell assets that are poorly managed,have poor profitability,and are inconsistent with the future direction of the company.Many enterprises in resource-intensive and labor-intensive industries have accumulated too many assets with low operational efficiency and even sustaining losses.There would be no benefit to continuing holding these assets,which is not conducive to the future development of the company.Asset divestiture has become a powerful tool for these companies to improve the performance.In addition,with the reform of state-owned enterprises being continuously promoted,asset divestiture is also one of the ways to improve operational efficiency,apart from mixed-ownership reform.Asset divestiture has a positive effect on revitalizing corporate assets,promoting strategic transformation,maintaining and increasing the value of state-owned assets.This article has summarized the domestic and foreign scholars' literature on asset divestiture research and the related theories that support asset divestiture.It has been found that scholars mainly focused on the concept,theory,classification,motivation and performance of asset divestiture.On the issue of the impact of asset divestiture,the research conclusions obtained by different scholars at home and abroad were different,because of choosing different samples from different periods for empirical research.The author has summarized the existing literature on asset divestiture,and found that the divestiture method and motivation will affect the divestiture performance.This article has taken Shanxi Coal(*ST Shanxi Coal)as the case study object.The author has analyzed the company's motivation of the asset divestitures,and studied the impact of asset divestitures on firm performance from the two dimensions of market and finance.First,the author has used event research method to calculate the cumulative excess return rate of stocks between the window period of [-5,5],[-10,10],and the excess return rate of the 15-month holding,as the basis for judging the short-term and long-term market performance.Then,this article has measured the influence of asset divestiture on the short-term financial performance from the aspects of net profit improvement,financial improvement and cash flow improvement.The author has used growth capacity indicators and financial institutions' forecasts of future business performance as a measure of long-term financial performance.In addition,the author has also calculated the EVA of the company before and after the asset divestiture,as an auxiliary judgment of the financial performance.Finally,based on the research results,the author has found: Asset divestiture based on the “avoid delisting” motivation can bring considerable short-term and long-term excess returns to the company's shareholders.Asset divestiture,which aims to improve short-term financial performance and return to the company's main business,can increase the shareholders' short-term wealth,but cannot promote the company's long-term value.The tactical asset divestiture based on “avoid delisting” and improving the short-term financial performance is beneficial for company to concentrate resources to develop core business and improve the financial performance,which is conformed to Refocusing Theory.However,the effect of improvement vary with factors such as divestiture motivation and divestiture assets.Asset divestiture can also improve the long-term financial performance of enterprises,but it still needs years of data support and further study.With the continuous development of China's capital market,as an important means of contraction,asset divestiture will also be more widely used by the theoretical and practical circles.This article has taken Shanxi Coal as a case study object and thoroughly analyzed the asset divestiture motivation and the impact on firm performance.The research conclusions have also provided some reference for enterprises that intend to adopt the asset divestiture method.However,because of the case study,only the case company has been studied,the conclusions obtained may not be universally applicable.