Abstract

http://ssrn.com/abstract=369709
 
 

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Learning about Internal Capital Markets from Corporate Spin-offs


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)


The Journal of Finance, Vol. 57, pp. 2479-2506, 2002

Abstract:     
We examine the investment behavior of firms before and after being spun off from their parent companies. Their investment after the spin-off is significantly more sensitive to measures of investment opportunities (e.g., industry Tobin's Q or industry investment) than it is before the spin-off. Spin-offs tend to cut investment in low Q industries and increase investment in high Q industries. These changes are observed primarily in spin-offs of firms in industries unrelated to the parents' industries and in spin-offs where the stock market reacts favorably to the spin-off announcement. Our findings suggest that spin-offs may improve the allocation of capital.

Accepted Paper Series


Not Available For Download

Date posted: August 27, 2003  

Suggested Citation

Gertner, Robert H. and Powers, Eric A. and Scharfstein, David S., Learning about Internal Capital Markets from Corporate Spin-offs. The Journal of Finance, Vol. 57, pp. 2479-2506, 2002. Available at SSRN: http://ssrn.com/abstract=369709

Contact Information

Robert H. Gertner (Contact Author)
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
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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