Deterrents to Divestiture

The timely extrication of a firm's resources from a business that is failing can be a delicate move. The deterrent effect of exit barriers, industry structural traits, and competitive posture investments would be expected to vary according to the kinds of competitive investments the firm made. Differences in firms' asset vintages and densities, as well as in their distribution network relationships, could permit some firms to exit more easily than others whose postures include more of the structural traits that had evolved into exit barriers. The exit decisions of 61 firms that competed in 8 declining businesses during the years 1965-1978 were examined. The businesses included percolator coffee makers, receiving tubes, rayon and acetate, acetylene, cigars, synthetic soda ash, American leather tanning, and baby foods. Results suggest that firms will want to plan their exits at the time of entry into a business. Given short life cycles for new products, it is not unreasonable to make provisions for the efficient removal of excess capital from low or negative growth businesses when contemplating investment.