Spin-offs, Divestitures, and Conglomerate Investment
Gönül Çolak and
Toni Whited ()
Review of Financial Studies, 2007, vol. 20, issue 3, 557-595
We examine whether spin-offs or divestitures cause improvements in conglomerate investment efficiency. At issue are endogeneity of these restructuring decisions and correct measurement of investment efficiency. Endogeneity is a problem because the factors that induce firms to spin off or divest divisions may also improve investment efficiency; measurement error is a problem because efficiency measures employ Tobin’s q as a noisy proxy for investment opportunities. We find important differences between firms that divest or spin off and a control sample. After accounting for these differences and for measurement error in q, we find no evidence of improvements in investment efficiency.
JEL-codes: G31 G34 (search for similar items in EconPapers)
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