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Persistence in Firm Policies, Firm Origin, and Corporate Culture: Evidence from Corporate Spin-offs

45 Pages Posted: 4 Jan 2007 Last revised: 15 Mar 2011

Henrik Cronqvist

University of Miami - Department of Finance

Angie Low

Nanyang Technological University - Division of Banking & Finance

Mattias Nilsson

U.S. Securities and Exchange Commission

Date Written: February 12, 2009

Abstract

We find significant persistence in various investment and financing policies. This persistence survives even the split-up of a firm through a spin-off transaction. We find that spin-off firms choose policies that are more similar to those of their parent firms than to those of their own matched peer firms. This commonality persists over a long period, is not due to inertia of initial policies, and cannot be explained by contractual and economic relationships that remain after the spin-off. We find that the commonality is stronger among internally-grown spin-off firms and those that originate from older parents, and the similarities exist even when a new outside CEO is hired to run the spin-off firm. Our evidence is consistent with theories of "corporate culture," and has implications for interpretations of firm fixed effects and more generally for future research on the impact of a firm's origin on corporate finance policies.

Keywords: Economics of corporate culture, investment policies, financing policies

JEL Classification: G32, G34, G35, L22, L25, Z10

Suggested Citation

Cronqvist, Henrik and Low, Angie and Nilsson, Mattias, Persistence in Firm Policies, Firm Origin, and Corporate Culture: Evidence from Corporate Spin-offs (February 12, 2009). EFA 2007 Ljubljana Meetings Paper; Second Singapore International Conference on Finance 2008; Fisher College of Business Working Paper No. 2007-03-001; Charles A. Dice Working Paper No. 2007-1; Robert Day School of Economics and Finance Research Paper No. 2009-2. Available at SSRN: https://ssrn.com/abstract=954791 or http://dx.doi.org/10.2139/ssrn.954791

Henrik Cronqvist (Contact Author)

University of Miami - Department of Finance ( email )

P.O. Box 248094
Coral Gables, FL 33124-6552
United States
(305) 515-5898 (Phone)

HOME PAGE: http://sites.google.com/site/henrikcronqvist/

Angie Low

Nanyang Technological University - Division of Banking & Finance ( email )

Singapore, 639798
Singapore

Mattias Nilsson

U.S. Securities and Exchange Commission ( email )

United States Securities and Exchange Commission
100 F Street NE
Washington, DC 20549
United States

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