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| Author: | Mehrotra, V. Mikkelson, W. Partch, M. |
| Title: | The design of financial policies in corporate spin-offs |
| Journal: | Review of Financial Studies
2003 : WINTER, VOL. 16:4, p. 1359-1388 |
| Index terms: | Corporate planning Spin-offs Financial policy |
| Language: | eng |
| Abstract: | The authors examine differences in financial leverage between parent and spun-off firms that emerge from corporate spin-offs. They find that firms that emerge from spin-offs with more financial leverage have a higher cash flow return on assets, lower variability of industry operating income, and a greater proportion of fixed assets. The results indicate that the ability to cover debt payments and default-related costs are important determinants of the use of financial leverage, as implied by the trade-off theory of capital structure. The authors find no evidence that managerial incentives or governance characteristics affect the difference in leverage ratios in firms that emerge from spin-offs. |
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