Assessing the market performance of US corporate spin-offs: effects of directors’ age and external board appointments along with their interaction
Abstract
Purpose
Spin-offs, as “popular” corporate restructuring mechanisms in the USA, aim to boost the shareholder value after the separation of a subsidiary/division from its divesting (parent) company. The role of the board, as a “vital” governing mechanism, in the success of these spun-off subsidiaries (child firms) is very critical because directors must ensure that they can provide these recently independent entities with their in-depth expertise, knowledge, industry experience, corporate connections and other resources so that adapting to their “new” market conditions will not be problematic. The purpose of this study is to examine whether two board demographic characteristics (namely, board members’ age and external directorships) along with their interaction affect the child firm’s market valuation, which extends previous work on the board of directors and corporate spin-offs. The theoretical arguments are grounded in resource dependence and upper echelons theories.
Design/methodology/approach
The sample included 136 completed spin-offs between 2000 and 2014. The data on board characteristics were collected by using companies’ proxy statements available on the securities and exchange commission website whereas firm and industry characteristics were collected by using the Compustat database.
Findings
The author has found that considered independently, board members’ average age and external directorships show positive and significant relationships with the change in market valuation of the child firm; however, the interaction effect of both variables appears to lessen this effect but remains significant.
Originality/value
The authors have shown that while the main effects of both board-level variables have positive and significant effects on the market performance of spun-off subsidiaries (as hypothesized), their interaction will make this effect go in the opposite direction.
Keywords
Acknowledgements
Our paper is organized as follows. In section one, we introduce our research context and question. In section two, we define corporate spin-offs, explain the role of the board of directors, state main arguments of the resource dependence and upper echelons theories, and present all our hypotheses. In section three, we offer our methodology including the sample, analysis, and measurement. In section four, we present our results. In section five, we discuss our results including research contributions, limitations, and future directions. In section six, we conclude.
Citation
Ozbek, O.V. (2024), "Assessing the market performance of US corporate spin-offs: effects of directors’ age and external board appointments along with their interaction", Corporate Governance, Vol. ahead-of-print No. ahead-of-print. https://doi.org/10.1108/CG-06-2023-0282
Publisher
:Emerald Publishing Limited
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