Personal managerial indiscretions are separate from a firm's business activities but provide information about the manager's integrity. Consequently, they could affect counterparties’ trust in the firm and the firm's value and operations. We find that companies of accused executives experience significant wealth deterioration, reduced operating margins, and lost business partners. Indiscretions are also associated with an increased probability of unrelated shareholder-initiated lawsuits, Department of Justice and Securities and Exchange Commission investigations, and managed earnings. Further, chief executive officers and boards face labor market consequences, including forced turnover, pay cuts, and lower shareholder votes at re-election. Indiscretions occur more often at poorly governed firms where disciplinary turnover is less likely.

The liquidity of the market for corporate assets plays an important role in explaining whether a firm divests a business segment, which segment the firm divests, and whether it divests a core segment or an unrelated segment. Firms are more likely to divest segments from industries with a more liquid market for corporate assets, unrelated segments, poorly performing segments, and small segments. Strikingly, the segment with the least liquid market is less likely to be divested than the best-performing segment, while the worst-performing segment is less likely to be divested than the segment with the most liquid market.