The Role of Managerial Incentive and Corporate Governance in Asset Restructuring: New Perspectives from Equity Carve-Outs

45 Pages Posted: 1 Feb 2015

See all articles by Chinmoy Ghosh

Chinmoy Ghosh

University of Connecticut - Department of Finance

Milena T. Petrova

Bocconi University

Date Written: January 30, 2015

Abstract

We investigate the effect of corporate governance on equity carve-out decisions during the period of 1990 to 2014. Consistent with the notion that managerial incentives drive corporate decisions, we find that firms where the CEO and management have larger stock ownership are more likely to carve-out their subsidiaries. Larger firms with prior poor performance are also more likely to carve-out their divisions. Among equity carve-out parents, larger firms with higher profitability, higher managerial ownership and CEO incentive-based compensation tend to retain higher portions of their subsidiaries. We finally demonstrate that for wealth-enhancing strategic decisions such as equity carve-outs CEO tenure and classified board are negatively related to value, while outsider dominated boards are perceived positively by the investors. Our results offer new insights on the role of managerial incentive and corporate governance in asset restructuring.

Keywords: Managerial incentive; Corporate Governance; Board structure; Equity carve-out

JEL Classification: G32; G34

Suggested Citation

Ghosh, Chinmoy and Petrova, Milena T., The Role of Managerial Incentive and Corporate Governance in Asset Restructuring: New Perspectives from Equity Carve-Outs (January 30, 2015). 2015 Financial Markets & Corporate Governance Conference, Available at SSRN: https://ssrn.com/abstract=2558298 or http://dx.doi.org/10.2139/ssrn.2558298

Chinmoy Ghosh

University of Connecticut - Department of Finance ( email )

School of Business
2100 Hillside Road
Storrs, CT 06269
United States
860-486-3040 (Phone)
860-486-0349 (Fax)

Milena T. Petrova (Contact Author)

Bocconi University ( email )

Via Sarfatti, 25
Milan, MI 20136
Italy

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