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Dual Directors and Corporate Spinoffs

Biography

Wharton School of Business
Associate Professor of Management

Emilie R. Feldman is an Associate Professor of Management at the Wharton School of the University of Pennsylvania. She graduated magna cum laude from Harvard College, where she studied Economics and French Literature, and she received her MBA and DBA in Strategy from the Harvard Business School.  Professor Feldman’s work focuses on corporate strategy and governance, with particular interests in the internal functioning of diversified firms and the role that divestitures, spinoffs, and mergers and acquisitions play in corporate reconfiguration.  Her research has been published in top academic journals, such as the Strategic Management Journal, Strategy Science, Organization Science, and the Academy of Management Journal, and has received numerous scholarly awards, including Distinguished Paper and Outstanding Dissertation Awards from the Academy of Management and the Best Conference Paper Award from the Strategic Management Society.

Emilie Feldman and Victor Bennett (2017), Make Room! Make Room! A Note on Sequential Spinoffs and Acquisitions, Strategy Science, 2 (2), pp. 100110.

Abstract: In this study, we identify a novel pattern of dealmaking activity—spinoffs followed by acquisitions—that has yet to be analyzed in the corporate strategy literature. We present a set of descriptive results showing that firms undertake spinoffs followed by acquisitions at a rate that is too high to be attributable to random chance. We also find that the acquired businesses are typically more closely related to these companies’ remaining operations than are the spunoff subsidiaries, a pattern that is common across companies with different characteristics. Together, these results suggest that firms may use sequential spinoffs and acquisitions to achieve ongoing synergies and improve the allocation of managerial attention within their organizations. We conclude by discussing how our work contributes to ongoing conversations in corporate strategy about patterns of acquisitions and divestitures, resource redeployment, reconfiguration, and firm scope.

Emilie Feldman (2016), Corporate Spinoffs and Capital Allocation Decisions, Strategy Science, 1 (4), pp. 256271.

Abstract: This paper investigates how spinoffs affect capital allocation decisions in diversified firms. The sensitivity of capital expenditures to investment opportunities, representing the efficiency of capital allocation decisions, improves when firms undertake spinoffs. The improvement in the efficiency of capital allocation decisions is most pronounced immediately following the completion of spinoffs (though it attenuates thereafter), and in companies that operate in a moderate (as opposed to a high or a low) number of businesses prespinoff. Together, these findings uncover a novel benefit that is associated with spinoffs, an improvement in the process by which managers allocate capital in the divesting firms. These results also suggest that an important theoretical mechanism that may be driving this improvement is that spinoffs enable managers to devote more attention to the capital allocation process within their remaining businesses.

Emilie Feldman (2016), Dual Directors and the Governance of Corporate Spinoffs, Academy of Management Journal, 59 (5), pp. 17541776.

Abstract: This paper investigates how "dual directors" enable firms that undertake corporate spinoffs to manage their postspinoff 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 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.

Emilie Feldman (2016), Managerial Compensation and Corporate Spinoffs, Strategic Management Journal, 37 (10), pp. 20112030.

Abstract: This paper investigates how corporate spinoffs affect managerial compensation. These deals are found to improve the alignment of spinoff firm managers' incentive compensation with stock market performance, especially among spinoff firm managers that used to be divisional managers of the spunoff subsidiary and particularly when the spunoff subsidiary performs better than or is unrelated to its parent firm's remaining businesses. By contrast, incentive alignment does not improve for the parent firm managers running the divesting companies. This finding appears to be driven by a significant postspinoff increase in these managers' incentive compensation, the magnitude of which is inversely related to governance quality in their firms. Together, these results elucidate how spinoffs influence managerial compensation in diversified firms and the companies they divest.

Emilie Feldman (2016), Corporate Spinoffs and Analysts' Coverage Decisions: The Implications for Diversified Firms, Strategic Management Journal, 37 (7), pp. 11961219.

Abstract: This paper investigates how spinoffs improve the quality of analysts' research about diversified firms, theorizing that these deals may induce analysts to revisit their earlier coverage decisions. The gains resulting from these shifts are expected to be more pronounced when a firm undertakes a legacy (rather than a nonlegacy) spinoff, which removes the business that may be constraining analysts' coverage decisions in the first place. Consistent with this argument, firms that undertake legacy spinoffs experience greater improvements in the composition and quality of their analyst coverage than their nonlegacy counterparts, and in their overall forecast accuracy and stock market performance. Taken together, these findings shed light on the relationships among the scope decisions, analyst coverage, and valuations of diversified firms.

Emilie Feldman and Patia McGrath (2016), Divestitures, Journal of Organization Design, 5 (1), pp. 116.

Emilie Feldman, Raffi Amit, Belén Villalonga (2016), Corporate Divestitures and Family Control, Strategic Management Journal, 37 (3), pp. 429446.

Abstract: This paper investigates the relationship between divestitures and firm value in family firms. Using handcollected data on a sample of over 30,000 firmyear observations, we find that family firms are less likely than nonfamily firms to undertake divestitures, especially when these companies are managed by family rather than nonfamily CEOs. However, we then establish that the divestitures undertaken by family firms, predominantly those run by familyCEOs, are associated with higher postdivestiture performance than their nonfamily counterparts. These findings indicate that family firms may fail to fully exploit available economic opportunities, potentially because they pursue multiple objectives beyond the maximization of shareholder value. These results also elucidate how the characteristics of corporate owners and managers can influence the value that firms derive from their corporate strategies.

Emilie Feldman and C. Montgomery (2015), Are Incentives without Expertise Sufficient? Evidence from Fortune 500 Firms, Strategic Management Journal, 36 (1), pp. 113122.

Abstract: Agency theory predicts that the right incentives will align agents’ interests with those of principals. However, the resourcebased view suggests that to be effective, the incentive to deliver must be paired with the ability to deliver. Without requisite ability, an agent's incentives may yield the desired alignment but not the desired results. Using the corporate boards of Fortune 500 firms as an empirical context, this study shows that the presence of directors who lack toplevel business experience but have large ownership stakes is negatively associated with firm value, an effect that becomes larger as the number of such directors on a board increases. Furthermore, firm value rises after such directors depart from corporate boards, with the greatest increases occurring in firms where the reduction in the number of these directors is the largest. While agency theory highlights the importance of having the right incentives in place, this research suggests that doing so can be ineffective if the right resources are not in place as well.

Emilie Feldman, S. Gilson, B. Villalonga (2014), Do Analysts Add Value When They Most Can? Evidence from Corporate Spinoffs, Strategic Management Journal, 35 (10), pp. 14461463.

Abstract: This article investigates how securities analysts help investors understand the value of diversification. By studying the research that analysts produce about companies that have announced corporate spinoffs, we gain unique insights into how analysts portray diversified firms to the investment community. We find that while analysts’ research about these companies is associated with improved forecast accuracy, the value of their research about the spunoff subsidiaries is more limited. For both diversified firms and their spunoff subsidiaries, analysts’ research is more valuable when information asymmetry between the management of these entities and investors is higher. These findings contribute to the corporate strategy literature by shedding light on the roots of the diversification discount and by showing how analysts’ research enables investors to overcome asymmetric information.

Emilie Feldman (2014), Legacy Divestitures: Motives and Implications, Organization Science, 25 (3), pp. 815832.

Abstract: This paper investigates “legacy divestitures,” the sale or spinoff of a company's original, or “legacy” business. The central tension considered in this work is that the historical presence of a firm's legacy business should simultaneously make that unit very interdependent with the company's remaining operations and make the firm's managers highly likely to take those same interdependencies for granted. Consistent with these predictions, the postdivestiture operating performance of firms that divest their legacy businesses falls short of that of firms that retain comparable legacy units, especially when the divested unit operates in the same industry as others of the divesting firm's businesses. Newer CEOs are more likely to undertake legacy divestitures than their longertenured peers, and the most recentlyappointed CEOs undertake the most costly legacy divestitures. In sum, this paper provides insights into how historical interdependencies create value in diversified firms, as well as the decisionmaking processes managers follow in overseeing these companies.

Past Courses

MGMT249 MERGERS & ACQUISITIONS

This course explores the role of mergers and acquisitions and alternative methods of corporate development in advancing the strategies of operating business. Emphasis is on the way companies use acquisitions to alter business mixes; seize opportunities in new products, technologies and markets; enhance competitive positioning; adjust to changing economics, and promote valuecreating growth. Although the course will emphasize strategic acquisitions, it also will explore leveraged buyouts and hostile financial acquisitions as well as their influence on corporate buyers. Please note that you must fulfill the prerequisites in order to enroll in this class.

MGMT721 CORP DEV: MERG & ACQUIS

This course explores the role of mergers and acquisitions and alternative methods of corporate development in advancing the strategies of operating business. Emphasis is on the way companies use acquisitions to alter business mixes; seize opportunities in new products, technologies and markets; enhance competitive positioning; adjust to changing economics, and promote valuecreating growth. Although the course will emphasize strategic acquisitions, it also will explore leveraged buyouts and hostile financial acquisitions as well as their influence on corporate buyers. Please note that you must fulfil the prerequisites in order to enroll in this class.

Best Paper Proceedings, Business Policy and Strategy Division, Academy of Management Annual Meeting, 2017 Excellence in Teaching Award, Undergraduate Division, The Wharton School, 2017 Winner, Best Paper Prize, Strategic Management Society Annual Meeting, 2016 Best Paper Proceedings, Business Policy and Strategy Division, Academy of Management Annual Meeting, 2016 Strategic Management Journal Outstanding Editorial Review Board Member Award, 2015 Distinguished Paper Award, Business Policy and Strategy Division, Academy of Management Annual Meeting, 2012 Best Paper Proceedings, Business Policy and Strategy Division, Academy of Management Annual Meeting, 2012 Finalist, Wiley Blackwell Outstanding Dissertation Award in Business Policy and Strategy, Academy of Management, 2011 Outstanding Reviewer Award, BPS Division, Academy of Management, 2011 Finalist, William H. Newman Award (for the best singleauthored paper based on a dissertation completed in the past three years), Academy of Management, 2011 Wyss Award for Excellence in Doctoral Research, Harvard Business School, 2010 Dissertation Completion Fellowship, Harvard Business School, 2009 Certificate of Distinction in Teaching, Derek Bok Center, Harvard University, 2008 High Distinction, General Exam, Harvard Business School, 2005 Duesenberry Award, Economics Department, Harvard University, 2004 Hutchison Prize, Winthrop House, Harvard College, 2004

Analysis: Companies Make Up, Then Break Up, Pittsburgh PostGazette 05/27/2016 DellEMC’s New Name: Blunder or Brilliance?, Information Week 05/05/2016 What Ugly Financial Markets Mean for Community’s Big Spinoff Plans, Modern Healthcare 02/23/2016 Dysfunctional SymantecVeritas Deal Sets New Low Bar for Mergers, San Francisco Chronicle 02/11/2016 Will Xerox’s Spinoff Unlock Value for Investors?, Knowledge@Wharton 02/10/2016 Interview about Yahoo! Spinoff, Knowledge@wharton Business Radio 12/15/2015 What it’s all about: inside the DowDuPont merger, WHYY Radio Times 12/14/2015 Yahoo’s Tax Focus Has Squandered Big Chance, San Francisco Chronicle 12/14/2015 Industrial Giants DuPont, Dow Chemical Announce $130 Billion Merger, NPR 12/11/2015 U.S. is the M&A Prom Queen, as Dealmaking Record Set, Investor's Business Daily 12/09/2015 Is a DowDuPont Merger Good or Bad for U.S. Biz?, CBS MoneyWatch 12/09/2015 Selling the GoldenEgg Goose, The New Yorker 11/23/2015 ConAgra CEO Put His Stamp on the Company, and in a Hurry, Omaha WorldHerald 11/19/2015 Why Nikkei Is Betting Big on Digital Growth at the FT, Knowledge@Wharton 07/29/2015 Interview about the Nikkei sale of the FT, Knowledge@Wharton Business Radio 07/28/2015 The Dark Side of ‘Dual Directors’ in Corporate SpinOffs, Knowledge@Wharton 06/30/2015 DuPont, if Peltz Gets His Way, The News Journal 03/20/2015 Barnes & Noble is Betting Slimmer Company Can Beat Amazon, The Street 03/04/2015 How Barnes & Noble Can Recover from the Nook’s Downward Spiral, Knowledge@wharton 12/11/2014 The Mergers and Acquisitions Cycle: Buy. Divide. Conquer, New York Times 12/10/2014 Interview about Barnes & Noble – Nook, Knowledge@wharton Business Radio 12/10/2014 Barnes & Noble Move May Signal a Spinoff, NPR Marketplace 12/04/2014 Le Divorce, The New Yorker 11/03/2014 HP and the Case for Corporate Spinoffs, Knowledge@wharton 10/17/2014 Companies Seeing the Advantages in Spinoffs, New York Times 10/15/2014 Interview about HewlettPackard Spinoff, Knowledge@wharton Business Radio 10/08/2014 Allan Sloan’s Year in Review, CNN Money 12/23/2013 Picture This: Kodak without its Film Business, Knowledge@wharton Today 09/14/2012 Why Microsoft Nabbed the Nook, Knowledge@Wharton 05/01/2012 Research Roundup: Homeowner Mobility, Divestitures and the Real Impact of FDI, Knowledge@Wharton 12/07/2011 Homeowner Mobility, Divestitures, and the Real Impact of FDI, Knowledge@wharton 12/07/2011 Netflix: Two Companies, Double the Headaches?, Knowledge@Wharton 09/20/2011 Ernst & Young: Too Big to Fail?, Fortune 12/21/2010 An Indictment against Ernst & Young? Maybe Not, Washington Post 12/21/2010 KPMG Partners Lucked Out – Thanks to Enron & Arthur Andersen, Washington Post 09/06/2005

Knowledge @ Wharton

What’s Behind the Latest Merger Mania?, Knowledge @ Wharton 11/29/2016 Will Xerox’s Spinoff Unlock Value for Investors?, Knowledge @ Wharton 02/10/2016 Is It Too Late to Reinvent Yahoo?, Knowledge @ Wharton 01/04/2016 Why Nikkei Is Betting Big on Digital Growth at the Financial Times, Knowledge @ Wharton 07/29/2015 The ‘Dark Side’ of Dual Directors in Corporate Spinoffs, Knowledge @ Wharton 06/30/2015

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