THE GOVERNANCE AND CONTROL OF VOLUNTARY CORPORATE SPIN-OFFS

We investigate the role that a voluntary corporate restructuring can p lay in the design of efficient internal corporate control mechanisms. To this end, we examine the post-restructuring internal control practi ces in 78 voluntary corporate spin-offs that were completed between 19 72 and 1987. We find that the selection of the new CEOs, the design of their compensation contracts, and the staffing of the boards of direc tors and their compensation committees in the spun-off firms can be se en as ex ante efficient. These governance and control practices, howev er, are not strongly related to the observed positive market reactions to the spin-off announcements. The results indicate that equity reorg anizations facilitate the implementation of efficient internal governa nce and control practices, but that other factors must influence the s hare price reactions to the announcement of such voluntary corporate r estructurings.