Corporate governance and the spinoff decision |
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| Institution: | 1. School of Management, Swansea University, United Kingdom;2. Management School, University of Sheffield, United Kingdom;1. Lancaster University Management School, Lancaster University, LA1 4YX, Lancaster, United Kingdom;2. WHU – Otto Beisheim School of Management, Burgplatz 2, 56179 Vallendar, Germany;1. Finance Department, Fulton Hall 440, Carroll School of Management, Boston College, Chestnut Hill, MA 02467, United States;2. Finance Group, D''Amore Mc-Kim School of Business, Northeastern University, 360 Huntington Avenue, Boston, MA 02115, United States;3. International Business School, Brandeis University, 415 South Street, Waltham, MA 02453, United States;1. University of Texas at Dallas, School of Management, SM31, Richardson, TX 75080, United States;2. Villanova University, Villanova School of Business, 800 E Lancaster Ave, Bartley 1003, Villanova, PA 19085, United States |
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| Abstract: | Using a sample of 102 spinoffs in the period 1981 to 1997, we investigate the relation between corporate governance and the spinoff decision. Diversified firms conducting a spinoff have characteristics previously hypothesized to be associated with more effective corporate governance, such as greater ownership by outside board members, more heterogeneous boards, and fewer board members, in comparison to a set of peer firms. Post spinoff, relative valuation measures increase a significantly greater extent than for peer firms. These findings are consistent with the view that agency problems are a contributing factor in firms maintaining value destroying diversification strategies. |
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