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We examine characteristics of firms involved in spin‐offs and test whether these spin‐offs induce changes in investment incentives and economic performance. We find that firms engaging in spin‐offs are larger, more highly leveraged, and have higher asset turnover and lower real asset growth than their industry rivals. We also find that spin‐offs generate significant increases in real asset growth and cash flow margin on sales for combined firm measures (spun‐off firm plus parent firm). The gains result from increases in real asset growth for parent and spun‐off firms, and improvements in cash flow margin on sales for parents. Our evidence is consistent with models in which spin‐offs create value by improving investment incentives and economic performance.

We analyze how 14,000 top U.S. executives exercise their stock options. Factors suggested by existing theories have low or moderate explanatory power. Variables that model executives’ motive to diversify fare particularly poorly, whereas variables that capture reference-dependent preference, such as past highs and lows of stock prices, perform better. By contrast, characteristics of option portfolios are of first-order importance and suggest that managers have target ownership levels. Institutional features like vesting restrictions or blackout periods also have a first-order impact. We conclude that executives’ main motivations for exercising stock options early seem to be outside the scope of extant models. (JEL G30, M52) Received August 20, 2018; editorial decision December 28, 2019 by Editor Andrew Ellul.

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This paper examines an optimal underwriter participation model and develops testable hypotheses regarding the influence of certain factors on the degree of underwriter participation in initial public offerings (IPOs) of common stock. The issue of underwriter participation is important primarily due to the tradeoff between foregone underwriter compensation and underwriting risk reduction. The results of this paper indicate that factors related to the issue, issuing firm, underwriter, and IPO market conditions all are important determinants of the participation decision. Interestingly, the results also show that the importance of these factors is not consistent across underwriter prestige groups. In particular, factors external to underwriters (e.g., the issuing firm and market characteristics) are more important for explaining nonprestigious underwriter participation, while factors related to underwriters themselves play a more important role for explaining prestigious underwriter participation. Copyright Blackwell Publishers Ltd 1999.