The Performance Effects of Transitional IT Services in Corporate Spin-Offs

In corporate spin-offs, spun-off units pursue two major objectives: separating and restructuring their business for independent operation; and retaining business continuity and minimizing operational disruptions. In trying to balance the conflicting demands of these objectives, spun-off units often turn to “transitional IT services” provided by their parents. However, the business value of the transitional IT services is not understood well yet. In this study, we examine different impacts of transitional IT services at different stages of corporate spin-offs. Our study population covers corporate spin-offs in which spun-off units were set up as independent public firms during 1999-2009 timeframe. We find that longer transitional IT services prolong the time-to-close spinoff deals and negatively affect market valuation of the spun-off units at the first day of trading. But longer transitional IT services positively affect operating performance of the spun-off units. They also help mitigate negative effects of business restructuring on operating performance.