Capital Structure in Corporate Spin-Offs

Amy Dittmar
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Amy Dittmar: University of Michigan

The Journal of Business, 2004, vol. 77, issue 1, 9-44

Abstract: In a spin-off, the parent divides the assets of the firm and chooses the capital structure for the new, stand-alone entity. I therefore use this sample to investigate how firms determine their capital structure. I find that the subsidiary has a leverage ratio lower than the parent's but similar to that of a comparable non-spin-off firm. Growth opportunities are the primary determinant of the subsidiary's leverage. Profitability has no impact on leverage choice. These results support the predictions of the trade-off theory of capital structure and provide insight into why previous studies find a negative relation between leverage and profitability.

Date: 2004
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Citations: View citations in EconPapers (28)

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Persistent link: https://EconPapers.repec.org/RePEc:ucp:jnlbus:v:77:y:2004:i:1:p:9-44

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