CEO Selection in Corporate Spin-offs

• Main Authors: Shih-Pai Cho, 卓仕珮
• Other Authors: 陳聖賢
• Format: Others
• Language: en_US
• Published: 2013
• Online Access: http://ndltd.ncl.edu.tw/handle/50877709307843181760

碩士 === 國立臺灣大學 === 財務金融學研究所 === 101 === This paper examines the effect of management selection in spin-off events. Spun-off firms’ CEOs tend to be promoted from inside, 86% had worked for parent firms be-fore spin-offs (called as insider); these insiders are chosen due to their firm-specific knowledge; however, they are not the best choice to firms’ performance and they are more likely to be overconfident. I analyze the announcement returns of spin-offs and the long-term operating performance for firm been spun-off. The announcement wealth effect and long-run performances are both significantly higher for firms led by outside CEO than insider. These results are supported by outsiders have better capital allocation; they are more sensitive to investment opportunity than insider. Besides, I also find that CEOs with MBA background also have better announcement effect and long-run performance. My research provides the evidence that since the spin-off is a decision to separate weaker asset out, promoting insiders who didn’t perform well in the past is not the best decision for shareholders’ interest. Evidences on outsiders and MBA background show that general management skill is more important than firm-specific human capital; they have better improvement of investment efficiency and operating performance in managing spun-off firms.