__Abstract__
We examine the impact of familiarity with business segments on CEOs’ divestment decisions. We find
CEOs to be less likely to divest assets from familiar than from non-familiar segments. We attribute this
effect to CEOs’ comparative information advantage relative to familiar segments. Reflecting this
information advantage, we document the familiarity effect to be particularly strong in R&D intensive
industries. We further find the familiarity effect to be most pronounced for longer-tenured CEOs who
have built up sufficient political power over the course of several years in office to enable implementation
of their preferred choices. We also document the value effects of divestments and show familiarity to
affect returns on divestment announcements.
[version: August 2013