Capital Structure in Corporate Spin-offs
نویسنده
چکیده
and an anonymous referee for helpful comments and suggestions. Abstract This paper investigates how firms determine the capital structure of a subsidiary that is divested in a spin-off. In a spin-off, the parent divides the assets of the firm and chooses the capital structure for the new, stand-alone entity. Unlike the firms in other capital structure studies, the subsidiary's leverage ratio is its initial capital structure. Thus, the typical explanations for why firms' leverage ratios may deviate from their target ratios do not apply. 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 but similar to a comparable non-spin-off firm. Also, similar to other firms, the subsidiary's leverage is negatively related to growth and positively related to its collateral value. However, unlike other firms, leverage is not inversely related to profitability. Further, the difference between the subsidiaries' and comparable firms' leverage ratios is positively related to profitability. 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.
منابع مشابه
Performance analysis of research spin-offs in the Spanish biotechnology industry☆
a r t i c l e i n f o This study examines whether the performance of biotechnology research spin-offs in Spain differs from non spin-off firms, using empirically-based fieldwork over a 5-year period and standard dichotomous regression analysis on 7-year data. Biotechnology research spin-offs in Spain are not necessarily located in core regions, are smaller in size and tend to grow faster in ter...
متن کاملOrganizational Factors Affecting the Growth and Success of Academic Spin-offs
The present study aimed to identify the organizational factors affecting the growth and success of academic spin-offs. The research was conducted based on a mixed method design and the study population consisted of experts of incubation centers and spin-offs. The participants were selected using purposive sampling in the qualitative part and random stratified sampling in the quantitative part. ...
متن کاملPurely Financial Synergies and the Optimal Scope of the Firm: Implications for Mergers, Spin-Offs, and Structured Finance
In the presence of corporate taxes and default costs, mergers can realize purely financial synergies due to reduced risk and the potential for greater leverage, as suggested by Lewellen (1971). But his conclusion that mergers always create positive financial synergies is incorrect: when firms have quite different risks or default costs, the loss from no longer being able to fit different capita...
متن کاملThe Impact of Institutional Ownership on the Relationship between Tax and Capital Structure
One of the reasons that companies avoid paying their taxes is that they choose to use debts for their funding. In other words, tax saving, an activity of companies to avoid taxpaying, can be used to finance corporate projects. Furthermore, since institutional owners are more inclined to supervise, they may shrink managerial behaviors to avoid taxpaying. In this study, institutional owners’ supe...
متن کاملSpin-offs as Strategies in Small and Medium Entreprises
Spin-offs – the process by which employees of an established organization leave this organization in order to create a new one – are a common phenomenon. In certain industries, such as management consulting, they even constitute the prevailing mode of entry (Garvin, 1983). Spin-offs are an inevitable by-product of Corporate Entrepreneurship programs and as such rather frequent in hi tech compan...
متن کامل