Learning about Internal Capital Markets from Corporate Spin‐offs

Robert Gertner, Eric Powers and David Scharfstein

Journal of Finance, 2002, vol. 57, issue 6, 2479-2506

Abstract: We examine the investment behavior of firms before and after being spun off from their parent companies. Their investment after the spin‐off is significantly more sensitive to measures of investment opportunities (e.g., industry Tobin's Q or industry investment) than it is before the spin‐off. Spin‐offs tend to cut investment in low Q industries and increase investment in high Q industries. These changes are observed primarily in spin‐offs of firms in industries unrelated to the parents' industries and in spin‐offs where the stock market reacts favorably to the spin‐off announcement. Our findings suggest that spin‐offs may improve the allocation of capital.

Date: 2002
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (95)

Downloads: (external link)
https://doi.org/10.1111/1540-6261.00503

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:bla:jfinan:v:57:y:2002:i:6:p:2479-2506

Ordering information: This journal article can be ordered from
http://www.afajof.org/membership/join.asp

Access Statistics for this article

More articles in Journal of Finance from American Finance Association Contact information at EDIRC.
Bibliographic data for series maintained by Wiley Content Delivery ().