earticle

영어

This paper examines how the boundary and efficiency of internal capital markets (e.g., firm size) is affected by corporate spin-offs. A spin-off is classified by its organizational structure: whether or not spun-off firms are operationally controlled or focused by parent firms after a spin-off. Surprisingly, in about 58% of the 102 spin-off transactions we studied, parent firms retain “control” of spun-off firms through overlapping management. Our result implies that these two types of parent firms are systematically different in their management of the internal capital market. That is, we find that corporate spin-offs themselves do not change investment sensitivity in parent firms after spin-offs. However, investment activities have already been sensitive to the change in Tobin’s Q around the spin-off events for the focused parent firms. In contrast, the controlling parent firms turn out to have maintained inefficient capital markets around spin-offs. We find that most of the focused parent firms in our spin-off sample are much larger than the controlling parent firms prior to spin-offs. Furthermore, for the controlling (focused) parents, the investment sensitivity increases (decreases) as firm size increases. These results are consistent with our argument that a spin-off appears to be a means to maintain an optimal firm size as suggested in Aron (1988), Gertner, Scharfstein, and Stein (1994) and Stein (1997). We show that the pre- and post spin-off marketadjusted performances are also consistent with the efficiency of the internal capital markets under these two types of parents.