Long-term operational performance following spin-offs: Evidence from the medical technology industry

Sammanfattning

Spin-offs function as a strategic tool for firms aiming to adjust their portfolios inresponse to strategic changes and evolving business environments. From an op-erational perspective, a common motivation for spin-offs is tied to expectations ofperformance improvements where the mechanisms behind this stem from abilities toincrease focus on core businesses as the parent and the spun-out entity can achievegreater organizational freedom, ability to change strategy, and focus the strategymore narrowly. There has been a high activity of spin-offs in the medical tech-nology industry and an underpinning reason for this is that firms aim to mitigateindustry-wide challenges through spin-offs with the motivation of achieving increasedoperational focus to capture long-term growth opportunities. Hence, the purposeof this study was to analyze spin-offs in the medical technology industry. To fulfillthis purpose, a mixed-method approach was employed to investigate the operationalperformance of spin-offs in the medical technology industry through a combinationof quantitative and qualitative analyses. The findings indicate that post-spin-off im-provements in operating performance, as measured by ROA, are mainly associatedwith the parent firms rather than the spun-off entities. In the studied sample, theparents benefited from increased focus as it facilitated strategy execution, capitalallocation, and access to capital. In addition, evidence suggests that the parent firmsspun out underperforming firms and that the spun-out entities prioritized growthover profitability to a greater extent.