The costs of refocusing: Evidence from hedge fund closures during the financial crisis

Rui J.P. de Figueiredo, Emilie R. Feldman, Evan Rawley

Research output: Contribution to journalArticlepeer-review

20 Scopus citations


Research Summary: This paper investigates the costs of corporate scope reduction (“refocusing”). Using data on hedge fund firms that were quasi-exogenously driven to close funds during the 2007–2009 financial crisis, we find evidence that refocusing imposes meaningful economic costs on firms. To better understand the mechanisms behind this result, we disaggregate refocusing costs along two dimensions: the degree of relatedness between the business that was closed and its sister divisions, and the duration of time over which the costs persist. The results suggest that refocusing imposes meaningful, yet transitory, adjustment costs on firms, and destroys synergies when related businesses are closed, creating more persistent costs. Accordingly, our work contributes to the corporate strategy literature by characterizing and evaluating the costs of refocusing. Managerial Summary: We examine the costs of “refocusing,” defined as multi-business companies reducing the number of businesses they operate. Using data on hedge funds that were driven to close one or more of their funds during the 2007–2009 financial crisis, we show that refocusing imposes meaningful economic costs on companies. We find that refocusing costs are larger and persist for longer when the business that was closed is more closely related to other businesses within the company. Together, our results suggest that refocusing may destroy synergies and be difficult for organizations to manage. This implies that managers should take steps to mitigate the dislocations that may occur as the refocusing process unfolds, as well as the long-run persistence in synergy destruction when more-related businesses are closed.

Original languageEnglish (US)
Pages (from-to)1268-1290
Number of pages23
JournalStrategic Management Journal
Issue number8
StatePublished - Aug 2019

Bibliographical note

Funding Information:
All authors contributed equally and are listed alphabetically. We would like to thank Senior Editor Connie Helfat and two anonymous reviewers for helpful comments on earlier versions of this paper. We are grateful to Zeke Hernandez and Rob Seamans, as well as seminar participants at Wharton, New York University, the 2017 BPS Executive Committee Winter Meeting, the 2017 Strategy Research Forum Meeting, the 2017 Consortium for Research in Strategy Meeting, and the 2017 Academy of Management Annual Meeting (where this paper received a Distinguished Paper Award), for valuable comments and suggestions on this research. Any errors are our own.

Publisher Copyright:
© 2019 John Wiley & Sons, Ltd.


  • adjustment costs
  • corporate strategy
  • refocusing costs
  • scope reduction
  • synergy destruction


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