How Dominant Owner Opportunism Influences Divestiture Returns Across Different National Governance Systems

This paper examines how dominant ownership affects abnormal returns around divestitures in the Western European Countries (Austria, Belgium, Finland, France, Germany, Ireland, Italy, Norway, Portugal, Spain, Sweden, Switzerland, and the U.K.). We hypothesize that in countries where minority shareholder protection is weaker, divestitures are more likely to be attempts by dominant shareholders to expropriate rents from minority shareholders. The emphasis on the agency relationship between dominant and minority shareholders complements a growing stream of literature recognizing that closely-held firms dominate the landscape in many countries. A unique dataset of 265 divestitures across thirteen countries is used to test the hypotheses. The evidence suggests that the effects of dominant ownership differ markedly across contexts with different minority shareholder rights protection.