Junge S, Graf-Vlachy L, Mammen J, Meinhardt R, Gudd C (2020)
Publication Type: Journal article
Publication year: 2020
Article Number: 101966
DOI: 10.1016/j.lrp.2020.101966
This paper examines the post-divestiture behavior of spun-off firms. Drawing on the spin-off literature and middle-status conformity theory, we argue that spun-off firms—as newly independent and publicly traded firms—tend to limit their risk-taking behavior to match the expectations of a crucial audience, i.e., security analysts. Following the logic of middle-status conformity theory, we hypothesize that firms with mid-level status are particularly susceptible to analysts' pressures, whereas high- and low-status firms are free to take greater risks. Crucially, however, we propose that this relationship is less pronounced for spun-off firms that are more attached to their parent firms, as formal and informal linkages between these two types of firms can endure beyond the separation and limit spun-off firms' independence. Using a dataset of 102 spin-off transactions occurring between 1995 and 2010, we find empirical support for a U-shaped relationship between spun-off firms' status and risk-taking. This relationship is attenuated when spun-off firms are more attached to their parents. We contribute to the spin-off literature by demonstrating that a spun-off firm's post-divestiture behavior is determined by the capital market audience's expectations and the attachment to the parent firm. In so doing, we also contribute to the literature on middle-status conformity theory by identifying a boundary condition of the theory. Additionally, we make a methodological contribution by combining ideas from the spin-off and institutional theory literature to develop a particularly comprehensive measure of attachment.
APA:
Junge, S., Graf-Vlachy, L., Mammen, J., Meinhardt, R., & Gudd, C. (2020). The illusion of independence: Spun-off firms’ risk-taking as a function of status and attachment to the parent firm. Long Range Planning. https://dx.doi.org/10.1016/j.lrp.2020.101966
MLA:
Junge, Sebastian, et al. "The illusion of independence: Spun-off firms’ risk-taking as a function of status and attachment to the parent firm." Long Range Planning (2020).
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