Spin-offs inherit the ownership structure of their parents. The change from the monitoring requirements of the parent to those of an often smaller and higher risk firm constitutes a shock to this inherited ownership structure. This paper examines how block ownership changes in response to this shock and the performance and survival consequences of these changes. Block ownership increases from an average inherited level of 20.34% to 27.35% in three years. Comparison with size and industry-matched firms shows that this is not due to secular trends. Block ownership increases more when the inherited block ownership is smaller, when the spin-offs are smaller, have poorer performance and fewer growth opportunities relative to the parent, and when they operate in industries that are less related to the parents' industries. The results suggest that block ownership changes in response to the monitoring needs of spin-offs. This interpretation is supported by the positive association between changes in block ownership and subsequent firm performance and survival.

While there is extensive research on how option incentives in executive compensation relate to risk-taking by managers, the impact of capital structure on this relationship has received little empirical attention. Extant work suggests that heightened managerial career concerns arising from financial risk and monitoring by debt holders will result in leverage dampening the relationship between managerial risk-taking and equity-linked incentives. We empirically evaluate this contention and find that firm leverage is associated with a significant weakening of the positive relationship between option incentives in flow compensation and managerial risk-taking. This result holds after accounting for the endogeneity of the firm leverage and incentive compensation decisions, and is robust across alternative measures of managerial risk-taking and to using the firm's credit ratings instead of leverage. The attenuating effect of firm leverage arises from both the long-term and short-term components of debt and is significantly stronger during the financial crisis of 2007–2009. Overall, the evidence highlights the influence of capital structure on the relationship between option incentives and managerial risk-taking.

Two recent papers document a significant relation between valuation multiples and governance indices during the 1990s. We test whether causation runs from governance to valuation or vice versa. We find that valuation multiples during the early 1980s, a period preceding the adoption of the provisions comprising the governance indices, are highly correlated with valuation multiples during the 1990s. After controlling for valuation multiples during 1980–1985, no significant relation exists between contemporaneous valuation multiples and governance indices during the 1990s. The results are consistent with the hypothesis that firms with low valuation multiples were more likely to adopt provisions comprising the governance indices, not that the adoption of these provisions depresses valuation multiples.