The second regularity in Table 1 is that spinoffs are more likely
around the time of an acquisition or change in the CEO, especiallywhen
the acquisition is by a firm in another industry or the new CEO comes
from outside the firm. Acquisitions and changes in the CEO may induce
changes in the spinoff hazard through two channels. First, they
commonly result in reorganizations that reduce the decision-making
authority of incumbent managers. This might be especially true when
the acquiring firm comes fromanother industry or the CEO comes from
another firm and has different ideas about how to run the firm. Second,
they may lead to a change in the target, θ, that induces new uncertainty
about the right strategy. Fig. 2 illustrates the effect of an acquisition or
change in the CEO that reduces the decision-making weight of
individual n. An acquisition or change in the CEO at time τ shifts the
absorbing barriers in and reduces the absolute value of their slopes.16
Some sample paths for ϕ(t) are also illustrated. An individual n that
found himself at point a at time τ opts to depart the parent company
immediately and form a spinoff. Individuals that do not depart at τ
nonetheless face increased risk of doing so after τ. For example, an
individual arriving at b will form a spinoff even though he would not
have done so had the parent company not been acquired or a new CEO
hired. The hazard increases immediately following an acquisition or
change in the CEO. Thereafter itmay followeither of two possible paths,
declining monotonically over time or rising initially before falling.