تخریب بازارهای سرمایه داخلی بواسطه توقف چرخش مالی: تأثیرات بر بهره وری تخصیص سرمایه و ارزش شرکت

We investigate the linkage between changes in firm value and changes in capital allocation efficiency resulting from dismantling internal capital markets via spinoffs. We find no evidence of wholesale misallocation of capital pre-spinoff. On the average, excess value increases following spinoffs. Furthermore, changes in excess value are positively linked to changes in capital allocational efficiency following spinoff. We find that spinoff announcement returns are greater (smaller) when the parent allocates capital to the unit to be spun off in a seemingly less (more) efficient manner. Divested division capital expenditures move toward industry levels after spinoff, regardless of their relative investment opportunities.

Spinoffs and other forms of divestiture dismantle existing internal capital markets; that is, the agents and mechanisms within a firm that influence the intra-firm allocation of capital and the monitoring of capital productivity. There are opposing views regarding the influence of these markets on firm value. Potential benefits include more effective monitoring, alleviation of capital budgeting constraints, and “winner picking” (see, e.g., Alchian, 1969 and Stein, 1997). Alternatively, internal capital markets may reduce incentives for division managers to exert effort, allow managers of poorly performing divisions to expropriate rents from other divisions or otherwise misallocate capital by subsidizing poorly performing divisions(e.g., Meyer et al., 1992 and Scharfstein and Stein, 2000).1 We investigate the effects of dismantling internal capital markets via spinoff on the efficiency of capital allocation and firm value, and we hope to add a few more findings to what is quickly becoming a vast body of knowledge. Gertner et al. (2002) find that the association between capital expenditure levels and investment opportunities of divested divisions strengthens post-spinoff when the parent and divested division operate in unrelated industries and, furthermore, that this effect is more evident in the case of spinoffs with higher announcement returns. Burch and Nanda (in press) document that post-spinoff improvement in excess value (EV) is greater when the spinoff reduces the diversity of investment opportunities among the parent's business segments. Ahn and Denis (in press) document a positive relationship between change in excess value and change in investment efficiency. Our study contributes to the literature on spinoffs and internal capital markets in the following ways. We begin by examining divested divisions to determine whether their capital investment behavior changes. There is little evidence of systemic misallocation of capital to these divisions before spinoff. On the average, relative to their respective industries, these divisions spend about the same post-spinoff. However, those that were receiving capital subsidies while housed in parent firms decrease spending, while those that were being rationed by parents tend to increase expenditures, regardless of relative investment opportunities. Both efficient investment patterns (i.e., subsidizing high q and rationing low q divested divisions) and inefficient investment patterns (i.e., rationing high q and subsidizing low q divested divisions) tend to go away after spinoff. We then measure changes in the allocational efficiency (AE) of capital expenditures before and after spinoffs at the combined firm level (i.e., parent plus divested division). In some cases, we find major improvements, and in some, we observe deterioration, but the average change is near zero. However, changes in allocational efficiency appear to be linked to pre-spinoff levels of efficiency. That is, firms that we categorize as inefficient before the spinoff appear to become more efficient in the aftermath. Our data also reveal that firms judged to be efficient allocators pre-spinoff tend to become less efficient afterward, thus, some spinoffs result in deterioration of allocational efficiency. Next, we turn to effects on firm value first measured by changes in excess value, where excess value is the difference in market value of the combined firm and a portfolio of stand-alone firms operating in the same segments (Berger and Ofek, 1995). We find that median changes in excess value are positive (as do Burch and Nanda, in press), and that they are positively linked to changes in allocational efficiency of capital expenditures (consistent with Ahn and Denis, in press). Finally, we find that spinoff announcement returns, a second measure of change in value, are related to the parent's policy of investment in the division to be divested. We find that breaking up internal capital markets affects firm value in the anticipated ways; that is, announcement returns are greater (smaller) when the parent allocates capital to the unit to be spun off in a seemingly less (more) efficient manner. Taken together, our results indicate that parents show no general tendency to misallocate capital before spinoff. For those that allocate capital unwisely before spinoff, dismantling internal capital markets has positive value effects on average, as expected. However, it also appears that many parents were creating value through their allocation of capital before spinoff. For these parents, breaking up internal capital markets that function efficiently results in less favorable value consequences, controlling for other effects of spinoffs. We acknowledge the bias arising from firms self-selecting into our spinoff sample. This bias does not disturb evidence linking value effects and pre-spinoff capital investment policies. However, the fact that firms choose to divest units via spinoff does mean that those with well functioning internal capital markets are less likely to appear in the sample, while those with poorly functioning internal capital markets are more likely to appear. This study proceeds as follows. In Section 2, we provide additional background on internal capital markets and spinoffs. Section 3 contains a description of our sample. 4, 5 and 6 contain analyses of capital expenditures, allocational efficiency, and value effects, respectively. In Section 7, we present concluding remarks.

We have examined spinoffs executed during 1980 through 1996 to assess effects of dismantling internal capital markets on allocational efficiency and firm value. On the average, relative to their respective industry groups, capital expenditure levels of divested divisions remain unchanged. However, we find that those divisions that were subsidized pre-spinoff reduce capital expenditures, while those that were rationed exhibit an increase in expenditures. Our first surprising result is that these reversals are not influenced by profitability (measured by Tobin's q) of the divisions. On the average, we find that allocational efficiency of parent firms remains unchanged post-spinoff. While there is evidently no wholesale efficiency improvement, we find that parents that are deemed inefficient pre-spinoff become more efficient on average. Our second surprising finding is that the reverse is true—efficient parents pre-spinoff exhibit some deterioration in efficiency. We assess changes in excess values of parent firms pre- and post-spinoff, and our data reveal: (1) positive average changes in excess value, and (2) a positive link between changes in excess value and changes in allocational efficiency. While excess value may improve for a variety of reasons, the significant positive relationship with changes in allocational efficiency suggests that dismantling some internal capital markets leads to improvements in firm value. Announcement-period abnormal returns (CARs) on parent firms' stocks are positive and significant on the average, and we find a significant negative relation between CARs and pre-spinoff efficiency of divested divisions. Thus, spinning off a division in which the parent invests inefficiently (efficiently) is met by a higher (lower) abnormal return. We find that CAR is related to each of the four pre-spinoff investment policies: (1) high q, subsidized; (2) low q, rationed; (3) high q, rationed; and (4) low q, subsidized.