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Spin-Offs, Divestitures, and Conglomerate InvestmentGonul ColakFlorida State University - College of Business Toni M. WhitedUniversity of Rochester - Simon Graduate School of Business January 1, 2005 Abstract: We examine whether spin-offs or divestitures cause improvements in conglomerate investment efficiency. At issue are endogeneity of these restructuring decisions and correct measurement of investment efficiency. Endogeneity is a problem because the factors that induce firms to spin off or divest divisions may also improve investment efficiency; measurement error is a problem because efficiency measures employ Tobin's q as a noisy proxy for investment opportunities. We find important differences between firms that divest or spin off and a control sample. After accounting for these differences and for measurement error in q, we find no evidence of improvements in investment efficiency.
Number of Pages in PDF File: 57 Keywords: Conglomerate discount, refocussing, investment, endogeneity, measurement error JEL Classification: G31, G34 working papers seriesDate posted: March 4, 2005 ; Last revised: November 23, 2009Suggested Citation |
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