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Learning About Internal Capital Markets From Corporate SpinoffsRobert H. GertnerUniversity of Chicago - Booth School of Business (Finance Authors); National Bureau of Economic Research (NBER) Eric A. PowersUniversity of South Carolina - Moore School of Business David S. ScharfsteinHarvard 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 seriesDate posted: January 26, 2001Suggested CitationContact Information
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