Abstract: This paper investigates how divestitures influence firms’ innovation outcomes. On the one hand, divesting firms would be expected to produce fewer inventions after undertaking divestitures due to the reduction in corporate scope that these transactions entail. On the other hand, divesting firms would be expected to produce more novel inventions and to progress a greater number of those inventions into development after undertaking divestitures due to the resource reallocation benefits of these transactions. Further, the gains in invention novelty would be expected to be amplified in firms that have higher Research and Development (R&D) intensity and in firms that have centralized (rather than decentralized) R&D units. We find support for these arguments in the context of the global pharmaceutical industry.