Abstract

There are a series of barriers to exit working against divestment decisions, in such a way that companies are inclined to hang on to unprofitable businesses. Structural exit barriers are characteristic of businesses, which make it in the companies' best interest to stay in them even though they are earning an unacceptably low rate of return or a rate that is below cost of capital. While structural exit barriers are to some extent inherent in the nature of a business, it is clear that strategic decisions made by the firm can raise or lower them. Managerial exit barriers are characteristics of the company's decision-making process, which deter its management from making decisions to exit from a particular business even though they are justified on economic grounds. Competitors have barriers to exit, too. Especially where these are structural exit barriers, competition will not give up easily in response to price-cutting or other actions, which reduce their market shares or cut into their profits. Such considerations should be raised when planning strategic moves.