Write-down timeliness, line-of-business disclosures and investors' interpretations of segment divestiture announcements

This paper examines investors' anticipation and subsequent interpretations of asset write-downs accompanying segment divestitures. Examining long-window returns cumulated over the two years preceding the year of divestiture, we hypothesize and find that investors anticipate write-downs of segment operating assets before divestiture and recognition occurs, with anticipation conditional on the timeliness of the write-down and prior disclosure of the segments' operating results under segment reporting rules. Short-window returns cumulated over the three days surrounding the announcement of the divestiture confirm that investor interpretations of asset write-downs are similarly contingent on write-down timeliness and prior disclosure.