Abstract
Corporate spinoffs are tax-free transactions between the parent firm (a.k.a. divesting firm) and its newly created, independent spun-off subsidiary (a.k.a. child firm) to increase value for both sides’ shareholders. As critical governance mechanisms, in this study we examine the effects of institutional and managerial ownerships on the market value of spun-off subsidiaries based on the corporate governance literature and behavioral agency perspective. In our sample, we have 144 completed U.S. spinoffs within a 14-year of time span, which are drawn from the SDC Platinum. According to our empirical analysis, we have found that both ownership structures have significant negative effects on the change in market value of the child firm. In addition, we have examined the interaction effect of both ownerships, which results in another significant effect in the opposite direction. Thus, this study reveals the critical importance of institutional and managerial ownerships for the market success of spun-off subsidiaries.
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