Some years ago, Sir John Harvey Jones, the management guru, was offering some advice to a businessman reluctant to dispose of a badly performing unit that was pulling down the rest of the enterprise. Sir John observed that "business often means killing off your favourite children". While he might have phrased it less brutally, basically he was saying that there is no room for sentimentality in business.

However, in recent years, instead of hanging on too long to useless assets for emotional rather than logical reasons, there is a veritable stampede of corporations rushing to get rid of business units.

In fact, some companies are so desperate to be quit of a business unit that they are prepared to give it away, as happened with BMW's disposal of Rover cars, and UK construction company John Laing's sale of its contracts division in September this year for £1.

All too often, there is no better rationale for this frenzy to dump than there is for clinging to a business long after its disposal is overdue.

So, when is it a sound decision to divest a business unit? Only when the divestment will create value for the seller.

Unfortunately, much of the research guages positive performance to comprise primarily a favourable stock market reaction to news of the divestment. This is the same type of thinking that gave us the dot.com fiasco. It is grounded in the belief that companies do not have to do anything constructive to make a profit.

They must merely look good, however briefly, and ride the wave of some contagious, if misguided market sentiment that ignores their profit and loss performance.

Analysing "good and bad" reasons for divestment, Constantinos Markides and Norman Berg, respectively of the London and Harvard Business Schools, concluded that real value can be destroyed through divestitures.

Although Markides and Berg give more credit than may be warranted to market efficiency in valuing divestitures, they do demonstrate that markets do not reward divestitures that fail to add value to the selling parent company.

Managers may believe that the disposal of an unprofitable unit will lift their share price. But, consistent with the views of Markides and Berg, the unprofitability of a disposed unit will already be reflected in a reduced sale price as well as a reduced share price.

So, disposal in itself will yield neither cash nor improved market value. Moreover, simply getting rid of unprofitable units does not constitute a strategy.

The reverse mistake - selling off a profitable division that is performing well - also occurs. Now why would any company get rid of a business that is a market leader, and also making money in a growth sector, especially if it fits with the core business, indeed is an inherent part of it?

This is a question Eircom shareholders must have been asking when the company agreed to sell its Eircell business to Vodafone. It would appear the board of Eircom was looking at a falling share price in an industry out of favour with the markets. A sale of its star business would be a way of realising some value for its shareholders.

Subsequent events - the sale of the remainder of Eircom - indicate that a fixation on share price was a primary driving force in the company. There was no evidence of any appetite for actually running and managing a business that carries on value-added work and has a purpose beyond share price.

What happened with Eircom is not unique. It is seen when directors believe that the market is underestimating the worth of an important division, which is obscured as part of a larger group.

However, research shows that firms that sell off star divisions actually experience zero or even negative returns.

The market recognises the illogicality of getting rid of a worthwhile asset in a move that will ultimately damage the company.

Divestment is sometimes used as a ploy to ward off an unwelcome takeover bid. Unfortunately, if it does not make strategic sense it can destroy value.

Companies will sometimes resort to asset sales to raise funds - BT, for instance, sold some subsidiaries to decrease its debt. The reasoning on selling to raise cash is that if companies are viable, they should be able to raise funding through equity or borrowing.

Many of the failings of divestitures have occurred when getting rid of a business unit was seen as a strategy in its own right. Sometimes, it is carried out with little thought other than that it has become fashionable. Ideally, divestment should be regarded only as one possible means of achieving a strategy, if ultimate dismantling of the whole company is to be avoided.

Dr Eleanor O'Higgins is a lecturer in strategic management and business ethics at the Smurfit Business School, UCD