Dual Directors and the Governance of Corporate Spinoffs

This paper investigates how "dual directors" enable firms that undertake corporate spinoffs to manage their post-spinoff relationships with the firms they divest, as well as the performance implications of dual directors serving simultaneously on these companies' boards. While the presence of dual directors is positively associated with the average stock market returns of parent and spinoff firms, their presence is also increasingly positively associated with parent firm performance, but increasingly negatively associated with spinoff firm performance as the share of sales a spinoff firm makes to its parent firm rises. These findings show that, while dual directors give a parent firm power over its spinoff firm, dual directors only exercise that power at the spinoff firm's expense when that company is highly dependent on its parent firm.