Divestiture has different organizational implications for the focal business when compared to dissolution. Dissolved businesses lose their organizational integrity. By contrast, divested businesses usually retain part of their original organizational structure within the new ownership, at least initially. Thus, divestiture provides a means of retaining valuable capabilities within an economic sector, even though the business fails. This discussion suggests the following proposition.
Legal conditions are one obvious factor.
If the law does not allow divestiture of particular types of business, whether owing to antitrust concerns or to restrictions on ownership of particular types of businesses, then few businesses will be divested. First, if few capabilities are organizationally embedded, then there will be little need to acquire a business in order to obtain its capabilities or transfer capabilities to it. Instead, the capabilities can be exchanged individually, without taking on the added expense and difficulty of merger and acquisition. Second, if capabilities are so strong embedded in a particular organizational context that they cannot be transferred between acquiring and target businesses, there will be no value in acquiring the unsuccessful business. The two points suggest a nonmonotonic relationship between organizational embeddeness and the frequency of business divestiture.