I investigate the nature of reconstructing by examining the changes in firm policies around\nspinoff. Because the pre-spinoff contract structure is more suitable for larger divisions of\nfirms, separated units experience relatively large changes in contracts following spinoffs.\nCompared to the post-spinoff parent firms, separated units have lower tendency to pay\ndividends, lower ownership by CEOs, higher fraction of outside directors, smaller board,\nyounger board members, higher block ownerships, and higher incentive payment. There are\nsignificant changes in the firm policies in both high q and low q units, however the market\nresponse is more positive for units with higher growth opportunities.
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