The evolution of ownership structure of corporate spin-offs

Spin-offs inherit the ownership structure of their parents. The change from the monitoring requirements of the parent to those of an often smaller and higher risk firm constitutes a shock to this inherited ownership structure. This paper examines how block ownership changes in response to this shock and the performance and survival consequences of these changes. Block ownership increases from an average inherited level of 20.34% to 27.35% in three years. Comparison with size and industry-matched firms shows that this is not due to secular trends. Block ownership increases more when the inherited block ownership is smaller, when the spin-offs are smaller, have poorer performance and fewer growth opportunities relative to the parent, and when they operate in industries that are less related to the parents' industries. The results suggest that block ownership changes in response to the monitoring needs of spin-offs. This interpretation is supported by the positive association between changes in block ownership and subsequent firm performance and survival.