The influence of CEO duality and board size on the market value of spun-off subsidiaries: The contingency effect of firm size

Purpose: Corporate spin-offs have become more popular as a restructuring technique in recent decades. The market performance of these spun-off subsidiaries has been considered critical, as positive market signals are vital to the success of these newly independent firms. Drawing on both the stewardship and resource dependence theories, this study aims to examine how two critical governance characteristics (namely, CEO duality and board size) affect the change in the market valuation of spun-off subsidiaries. This study proposes that both board size and CEO duality of spun-off subsidiaries should positively influence the change in market valuation. Design/methodology/approach: This study used the SDC Platinum database to identify completed corporate US spin-offs between 2000 and 2014. To ensure consistency across spin-off events, this study included only those in which 100 percent of outstanding shares of spun-off subsidiaries were distributed. The study confirmed the SDC Platinum listings using online resources such as The Wall Street Journal and Lexis/Nexis. The study used weighted least square (WLS) regression to test all the proposed models. Findings: This empirical analysis of 134 US-based spin-offs supported both main hypotheses. Furthermore, the analysis also finds that firm size has significant moderating effects on the link between governance structure and market performance. Originality/value: These findings contribute to the governance literature on corporate spin-offs by advancing our understanding of the role of CEO and board characteristics in improving these subsidiaries' market valuation, as well as the moderating effect of the firm size.