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

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