Legitimacy Needs as Drivers of Business Exit

2. Literature Review (S. 9-10)

In this chapter the literature on business exit is reviewed. Starting with Porter (1976), I used the Business Source Premier Database for the identification of relevant articles and focused my search on the keywords 'restructuring', 'exit', 'divestiture', and 'divestment'.

In order to enrich my literature base mainly derived from management research, I included some studies from different but related fields such as finance and economics. Studies on business exit predominantly focus on three aspects, namely antecedents, barriers, and outcomes. Antecedents of business exit involve motives that are associated with performance, strategy, corporate governance, and the environment. Barriers are of structural, strategic, or managerial nature. The outcomes of business exit concern corporate strategy, employees, managers and owners, firm performance, and the divested business.

Before studies that represent the research on business exit from the past three decades will be examined, a thorough explanation of what is meant with the term 'business exit' is outlined. Some avenues for research will be discussed at the end of this chapter.

2.1 Business Exit: Defining the Domain

Many types of exit can be found in literature. Occasionally they are not clearly distinguishable from each other. For instance, market exit focuses on separable markets or market segments in which a firm is operating and where it aims at ceasing operations, such as the Bank of Boston Corporation which has sold off its units in regional markets with low nominal market share, i.e., it has closed its units in some regionally separable markets without totally abandoning a business.

Firm exit refers to the turnover or closure of entire firms. Organizational exit is part of organizational restructuring and refers to changes in a firm's internal structure in order to enhance management efficiency.30 This type of exit involves, e.g., the alteration of production systems or downsizing. Technological exit means that a firm ceases to innovate in a special technological field. Thus a business exit is a phenomenon among a variety of sometimes overlapping and competing concepts. It concentrates on parts (i.e., units, divisions, businesses, segments) of a multibusiness firm. Business exit can be pursued either voluntarily or involuntarily and either proactively or reactively.

Put in a nutshell, this asset restructuring activity involves a diversified firm's withdrawal from one of its business units, such as Intel's abandonment of the DRAM business. A frequently used distinction of modes of business exit is that between dissolution and sell-off. Several studies rely on this classification. 'Dissolution' means that businesses are entirely shut down (i.e., liquidated) and do no longer exist. While, e.g., Mitchell (1994) and Chang and Singh (1999) use the terms 'dissolution' or 'shutdown', other researchers, such as Mata and Portugal (2000) and Doi (1999), prefer 'closure'.

'Sell-off' means that a business, subsidiary, segment, or product line is sold as an individual operating unit to another owner, i.e., an acquiring firm - a socalled strategic investor - adopts it.38 Mata and Portugal (2000) and Villalonga and McGahan (2005) use the term '(capital) divestiture'. Other forms of exiting a business unit are spin-offs and buy-outs which, according to Mitchell (1994), are here viewed as varieties of sell-offs.40 Thissen (2000) denotes them as institutional arrangements because the sold businesses do not become part of another parent firm but remain independent entities.