CEO's characteristics and value creation from corporate spin-offs

Abstract

An important corporate spin-off procedure is forming the spun-off unit's management team by a parent firm, especially the selection of the spun-off unit CEO. Using 207 completed spin-offs with announcement and execution dates between 1994 and 2018, we investigate whether the financial expertise of spun-off unit CEOs is an essential determinant of post-spin-off performance other than spun-off unit CEOs’ other observable characteristics, including their general managerial skills. We find that the abnormal announcement returns for appointing financial expert CEOs at spun-off units are between 2.83 and 3.14 percentage points larger than those generated for appointing non-financial expert CEOs. Furthermore, spun-off unit CEOs with financial expertise significantly improve spin-off firms’ access to external capital resources and subsequent operating performance. Overall, we conclude that spun-off unit CEOs’ financial expertise is a critical determinant of the value creation of spin-off procedures. Our paper contributes to a growing literature on CEOs, their characteristics, and their impact on firm performance.