Extant theory and empirical evidence indicate that equity-based compensation can align the interests of managers with those of shareholders, but it has a side effect of aggravating bondholder-shareholder conflicts by increasing managers' risk-shifting incentives. Recent evidence confirms that...

Using a unique sample of plant level data from the Longitudinal Research Database of the U.S. Census Bureau, which enables us to correctly identify the parent and spun-off entities prior to spin-offs, we establish that efficiency improves following spin-offs. A spin-off refers to the separation...