The Impact of Firm-Advisor Ties on Corporate Divestiture Performance

The important role of financial advisors in corporate restructuring is widely recognized. However, while much attention has been focused on their impact on acquiring firms, not much has been directed at the impact on divesting firms. Given that divestitures are not simply mirror images of acquisitions, the performance consequences of divesting-firms’ ties with their financial advisors warrant separate investigation. Our study examines how different aspects (the number, task relevance, and exclusivity) of prior firm-advisor ties influence divesting-firm performance and how the firms’ motivation to leverage knowledge through their external advisors, arising from financial distress, influences the efficacy of these relationships. We theorize that organizational learning and relational trust arising from greater numbers of ties and higher task relevance in prior firm-advisor ties lead to stronger post-divestiture performance and that these positive effects are further amplified when firms have a stronger motivation to extract value from shared knowledge. However, the exclusivity of firm-advisor ties can be a double-edged sword, showing a curvilinear impact on divesting-firm performance. This study contributes to our understanding of how divesting firms benefit from building shared knowledge and learning with their advisor when prior ties are contextually relevant, but not necessarily exclusive, and of the important role of firm motivation in realizing these benefits.