Review of Quantitative Finance and Accounting, 14 (2000): 277±288
# 2000 Kluwer Academic Publishers. Manufactured in The Netherlands.
The Choice Between Spin-offs and Sell-offs
TERRY D. NIXON
Kelley School of Business, Indiana University, 1309 East Tenth Street, Bloomington, IN 47405
RODNEY L. ROENFELDT
The Darla Moore School of Business, University of South Carolina, Columbia, SC 29208
NEIL W. SICHERMAN
Crummer Graduate School of Business, Rollins College, 1000 Holt Avenue, Winter Park, FL 32789
Abstract. Spin-offs and sell-offs are alternative methods for divesting assets, but the effects on the parent ®rm
differ substantially. We examine ®rms' characteristics that may in¯uence the asset divestiture choice between a
spin-off and sell-off. Results of the analysis indicate that the primary factors in¯uencing the choice of divestiture
type are ®nancial distress, number of directors on the board, whether the CEO is also the Board Chair, and the size
of the unit divested.
Key words: restructuring, divestiture, spin-off, sell-off
The purpose of this paper is to identify determinants of the choice between corporate spin-
offs and sell-offs. Both spin-offs and sell-offs have a positive effect on shareholder wealth
for the divesting ®rm, on average (Klein, 1986; John and Ofek, 1995; Hite and Owers,
1983; Cusatis, Miles, and Woolridge, 1993). However, spin-offs and sell-offs differ
substantially in their effect on the parent ®rm. For example, sell-offs require negotiation
with a third party, transform illiquid assets into liquid assets, and do not reduce the value of
the assets under the control of the parent management unless cash is distributed to
shareholders. Spin-offs repackage ownership across existing shareholders, produce no
cash, and reduce the level of assets under the control of the parent management.
Steiner (1997) identi®es four possible determinants of the decision to sell-off corporate
assets. He concludes that the probability of a sell-off is higher for ®rms with weaker
®nancial performance, higher ®nancial leverage, more business segments, and a lower
percentage of ownership by of®cers and directors compared with ®rms that do not divest
assets. Since a spin-off is an alternative form of divestiture, we examine ®rm
characteristics that may in¯uence the choice to spin-off rather than sell-off assets.
Our results indicate that a ®rm is more likely to spin-off assets than sell-off assets if it
has fewer directors on the board, the of®ces of CEO and board chair are separate, and the