Proactive divestiture and business innovation: R&D input and output performance

Abstract

We investigate the impact of proactive divestitures on innovative activities at a firm-level. Research concerning the relationship between proactive divestiture and innovation performance remains unexplored and requires a close investigation. Furthermore, we argue that proactive-divestiture is an essential means to achieve corporate sustainability by fostering innovation outcomes. To explore such a relationship, this study integrates research on knowledge-based view and organizational inertia and encompasses the model of financial distress. We hypothesize that proactive divestiture increases both the firm's R&D intensity and the number of patents and propose that prior divestiture experiences and divested-unit size would moderate this relationship. Results indicate that proactive post-divestiture firms have increased in R D inputs but not significantly in output. We found mixed results for such a relationship as prior experiences increased, but interestingly, the relationship revealed to be more significant for both input and output as divested-unit size decreased. This study contributes to our understandings of how proactive divestiture can reinforce knowledge capacity, distant from a traditional resource-based view that mainly regarded divestiture as a mere responsive action vis-à-vis financial pressure.