When Are Financial Advisors Most Likely to Add Value to Divesting Firms

We extend relational governance theory and advice taking literature by examining the underexplored role of boundary spanners in the business exchange relationships between divesting firms and their financial advisors. Our theoretical model proposes that firms’ relational trust and competence trust with the financial advisor play an important role in managerial decisions on divestiture activity and these relationships are accentuated especially when CEOs lack task experience. Based on a sample of 257 divestiture programs in the United States, we find strong support for our theoretical model. Our study shows that financial advisors’ value-added proposition in the divesting firms varies upon their reputation and past relationship with client firms and that less experienced CEOs are more receptive to the strategic influence from external advisors who are considered more trustworthy based on their reputation and relationship with the firm.