Organizational Form, Information Collection, and the Value of the Firm
Indiana University - Department of Finance
Journal of Business, Vol. 78, No. 3, 2005
In a multidivision firm, does the market collect less value-relevant information when the divisions are treated as a unit rather than when each division trades as a separate firm? We find that organizational form has a nontrivial impact on information collection. In particular, we find that a spin-off may lead to either an increase or a decrease in aggregate information collection. We further explore how this result affects firm value and the conditions for a value-increasing spin-off. Our results provide a novel rationale for why firms may choose to spin off a division or issue a tracking stock.
Keywords: Information, spin-off, divisions
JEL Classification: D82, G14, G30Accepted Paper Series
Date posted: June 3, 2008
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