In this thesis, I investigate corporate governance with an emphasis on a firm’s internal and external restructuring. I examine in the first chapter the best divestment option for a firm to divest a subsidiary from sell-offs, spin-offs, carve-outs, and management buyouts. In an infinite-period growth model, subsidiary managers have complete information about the subsidiary’s profitability, while firm owners and outside buyers may have incomplete information depending on whether the divestiture is public or private (types of divestiture) and whether the information is explicit or tacit (nature of information). I show that the nature of information, incompleteness of information, risk aversion, synergy, and discount on future performance play important roles in determining the best divestm...[ Read more ]

In this thesis, I investigate corporate governance with an emphasis on a firm’s internal and external restructuring. I examine in the first chapter the best divestment option for a firm to divest a subsidiary from sell-offs, spin-offs, carve-outs, and management buyouts. In an infinite-period growth model, subsidiary managers have complete information about the subsidiary’s profitability, while firm owners and outside buyers may have incomplete information depending on whether the divestiture is public or private (types of divestiture) and whether the information is explicit or tacit (nature of information). I show that the nature of information, incompleteness of information, risk aversion, synergy, and discount on future performance play important roles in determining the best divestment option. The second chapter presents a unified theory of forward- and backward-looking M&As and divestitures. In a two-period model, two firms consider integrating or separating for each period. I analyze forward- and backward-looking M&As and divestitures and compare them with their static counterparts. I show that forward- and backward-looking organizational decisions are significantly different from static ones. The influence of past and future decisions on current decisions depends on market risk and fluctuations, synergy, asset specificity, and market mood. In the third chapter, I study the boundary of the firm with an endogenous firm structure. By comparing the firm’s restructuring options (internal vs. external), I determine the boundary of the firm based on the optimal firm structure. I find that when market uncertainty rises, a decentralized firm (D-firm) is more likely to carry out internal restructuring, while a centralized firm (C-firm) is more likely to carry out external restructuring. When market competition intensifies, a D-firm will stay put, while a C-firm is more likely to opt for either internal or external restructuring depending on whether there is positive synergy among divisions.