Can divesting real estate improve company performance?

Abstract

It is common for companies to divest real estate to improve corporate performance. This study aims to determine whether such divestitures could improve the Return on Asset for Malaysian public-listed companies. A sample of 138 asset divestitures announced in Bursa Malaysia within 2002-2005 is used. Logistic regression is the estimation method with asset efficiency, financial constraint, relatedness of asset, use of proceeds and relative size of divested asset as the independent variables. The results show that in order to improve performance, companies need to divest sufficiently large real estate and use the divestiture proceeds to reduce financial constraint by repaying debt due. The key implications are the purpose of divestitures and how proceeds are used are the main determinants to improving company performance. Selection of real estate - whether they are efficient or related to the company’s core business are less crucial in affecting company performance.