The choice of managerial structure of spin - offs: managerial discretion or corporate focus

Abstract

We examine the relation ship among the choice of spin-off management structure ,agency costs of managerial discretion, and corporate focus for 72 U.S,firm from 1982-1996. We document a positive relationship between the propensity of choosing an overlapping management structure and leverage, managerial ownership, and profitability, but find negative relationships between the probability of choosing an overlapping management structure and both parent firm size and the degree of diversification. It is shown that leveraged, profitable, and small or less diversified firms and firms with high insider shareholdings tend to maintain control of the firm being spun off, These results are robust to the industry effects, Overall, these findings are supportive of both the managerial discretion hypothesis and corporate focus argument.