The effects of corporate spin-offs on productivity |
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| Affiliation: | 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. Department of Finance and Business Economics, Foster School of Business, University of Washington, Seattle, WA 98195-3200, USA;2. Department of Finance and Business Economics, Department of Information Systems and Operations Management, Department of Statistics, Foster School of Business, University of Washington, Seattle, WA 98195-3200, USA;1. Chinese Academy of Finance and Development, Central University of Finance and Economics, 39 South College Rd, Haidian, Beijing 100081, China;2. Department of Finance, Cleveland State University, United States;1. Department of Economics, Finance, and Healthcare Administration, Langdale College of Business Administration, Valdosta State University, Valdosta, GA 31698, United States of America;2. Department of Finance, Robert C. Vackar College of Business and Entrepreneurship, University of Texas Rio Grande Valley, Edinburg, TX 78539, United States of America;3. Department of Finance, Robert C. Vackar College of Business and Entrepreneurship, University of Texas Rio Grande Valley, Brownsville, TX 78520, United States of America;1. The Olayan School of Business, American University in Beirut, Lebanon;2. Cardiff Business School, Cardiff University, UK;3. European Corporate Governance Institute, Belgium |
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| Abstract: | Using a unique sample of plant level data from the Longitudinal Research Database of the U.S. Census Bureau, which enables us to correctly identify the parent and spun-off entities prior to spin-offs, we establish that efficiency improves following spin-offs. A spin-off refers to the separation of the management of some assets of a firm into a separate entity (which we term as the spun-off entity or subsidiary). We investigate the underlying mechanisms and the real effects of spin-offs after correcting for potential endogenous selection using treatment effect estimators and propensity score matching in our analysis. We identify how (the precise channel and mechanism), where (parent or subsidiary), and when (the dynamic pattern) efficiency improvements arise following spin-offs. We show that spin-offs increase total factor productivity (TFP) and that such productivity improvements are long-lived. This post spin-off productivity improvement can be attributed to cost savings but not to higher sales. Further, such improvements arise primarily in plants remaining with the parent. However, contrary to speculation in the previous literature, we show that plants that are spun-off do not underperform parent plants prior to the spin-off. We identify acquisitions following spin-offs and find that while productivity improvements occur immediately after the spin-off in non-acquired plants, they start only after being taken over by another firm in acquired plants. Finally, we show that unrelated spun-off entities show greater improvements in productivity compared to related spun-off entities. |
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