Abstract

http://ssrn.com/abstract=255922
 
 

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Learning About Internal Capital Markets From Corporate Spinoffs


Robert H. Gertner


University of Chicago - Finance; National Bureau of Economic Research (NBER)

Eric A. Powers


University of South Carolina - Moore School of Business

David S. Scharfstein


Harvard Business School - Finance Unit; National Bureau of Economic Research (NBER)

November 2000


Abstract:     
This paper examines the investment behavior of firms before and after they are spun off from their parent companies. We show that investment after the spinoff is significantly more sensitive to measures of investment opportunities (e.g. industry Tobin's Q or industry investment) than it is before the spinoff. Spinoffs tend to cut their investment in low Q industries and increase their investment in high Q industries. These changes are observed only in spinoffs of firms in industries unrelated to the parents' industries and in spinoffs where the stock market reacts favorably to the spinoff announcement. Our findings point to the possibility that one effect of spinoffs is to improve the allocation of capital.

Number of Pages in PDF File: 47

JEL Classification: G31,G34

working papers series


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Date posted: January 26, 2001  

Suggested Citation

Gertner, Robert H. and Powers, Eric A. and Scharfstein, David S., Learning About Internal Capital Markets From Corporate Spinoffs (November 2000). Available at SSRN: http://ssrn.com/abstract=255922 or http://dx.doi.org/10.2139/ssrn.255922

Contact Information

Robert H. Gertner
University of Chicago - Finance ( email )
5807 S. Woodlawn Avenue
Chicago, IL 60637
United States
National Bureau of Economic Research (NBER)
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
Eric A. Powers (Contact Author)
University of South Carolina - Moore School of Business ( email )
1705 College St
Francis M. Hipp Building
Columbia, SC 29208
United States
803-777-4928 (Phone)
David S. Scharfstein
Harvard Business School - Finance Unit ( email )
Boston, MA 02163
United States
617-496-5067 (Phone)
617-496-8443 (Fax)
HOME PAGE: http://www.people.hbs.edu/dscharfstein/
National Bureau of Economic Research (NBER)
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
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