Prospect Theory, Behavioral Theory, and the Threat-Rigidity Thesis: Combinative Effects on Organizational Decisions to Divest Formerly Acquired Units

• Published in: Academy of Management journal Vol. 50; no. 6; pp. 1495 - 1514
• Main Author: Shimizu, Katsuhiko
• Format: Journal Article
• Language: English
• Published: Briarcliff Manor Academy of Management 01-12-2007
• Subjects: Acquisitions; Ambiguity; Business management; Business organization; Business risks; Business structures; Business studies; Chief executive officers; Corporate strategies; Decision theory; Divestiture; Longitudinal studies; Management science; Management theory; Organizational behavior; Organizational research; Prospect theory; Resource availability; Risk management; Risk taking; Special Research Forum: Building Bridges across Levels; Statistical analysis; Studies
• ISSN: 0001-4273; 1948-0989
• DOI: 10.5465/amj.2007.28226158

By complementing prospect theory with organization-level behavioral theory and the threat-rigidity thesis, I study how factors unique to an organizational level can interact with the individual-level tendencies predicted by prospect theory. I tested this approach by examining organizational decisions to divest or retain formerly acquired units in a longitudinal setting. The results show that divestiture decisions are influenced by both individual- and organization- level factors that cannot be explained solely by one theory and provide a richer understanding of organizational risk-seeking behaviors.