Dual Directors and the Governance of Corporate Spinoffs
Penn collection
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corporate spinoffs
governance
power
transaction cost economics
resource dependence theory
Business Administration, Management, and Operations
Business and Corporate Communications
Business Intelligence
Corporate Finance
Management Information Systems
Management Sciences and Quantitative Methods
Organizational Behavior and Theory
Strategic Management Policy
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Abstract
This paper investigates how “dual directors” enable firms that undertake corporate spinoffs to manage their post-spinoff relationships with the firms they divest, as well as the performance implications of dual directors serving simultaneously on these companies’ boards. While the presence of dual directors is positively associated with the average stock market returns of parent and spinoff firms, their presence is also increasingly positively associated with parent firm performance, but increasingly negatively associated with spinoff firm performance as the share of sales a spinoff firm makes to its parent firm rises. These findings show that, while dual directors give a parent firm power over its spinoff firm, dual directors only exercise that power at the spinoff firm’s expense when that company is highly dependent on its parent firm.