Based on Australian divestiture activity, this thesis helps resolve the ambiguity as to the source of divestiture gains via a three-step procedure. First, using event study methodology it demonstrates that, analogous to US divestiture activity, Australian divestiture activity produces positive abnormal returns of 1.15% on average. Second, it rationalises previous research into two distinct paradigms within which the divestiture decision may be considered: the strategic or focus rationale and the financial rationale. By segregating the sample into 'strategic' and 'non-strategic' divestitures it finds that only the former category produce significant positive abnormal returns (of approximately 1.73% on average).
Finally, the announcement effect of the intended use of proceeds of sell-offs is examined. III support of the primary results, the abnormal returns accruing to firms who intend to retain the proceeds and use them for investment (strategic) activities (3.2%) are larger than those that accrue to firms intending to use the proceeds to pay down debt (1.9%). Despite, this it appears that the market prefers some information as to the use of proceeds as opposed to no information, as returns accruing to firms falling into the latter category were not significantly different from zero.