Abstract

http://ssrn.com/abstract=6918
 
 

Citations



 


 



Spin-Offs and Information


Michel A. Habib


University of Zurich; Swiss Finance Institute

D. Bruce Johnsen


George Mason University - School of Law; PERC - Property and Environment Research Center

Narayan Y. Naik


London Business School - Institute of Finance and Accounting

No Date


Abstract:     
This paper provides an explanation for the increase in firm value observed upon spin-off that is based upon the transmission of information about the various assets (or divisions) of a firm from informed to uninformed investors. Spin-offs serve to transmit information from informed to uninformed investors by increasing the number of traded securities, from whose prices uninformed investors can infer part of the private information of informed investors. The additional information made available to uninformed investors improves their estimates of, and decreases their uncertainty about value of the assets of the firm. It thus increases their demand for the securities issued by the firm in the presence of positive information about the value of the assets of the firm, in turn increasing the price of these securities and the value of the firm. The increase in firm value made possible by a spin-off is shown to be related to the amount of trading that follows the spin-off, as uninformed investors increase their total holdings of the various securities. The private information made available to uninformed investors is also made available to managers, who are thereby enabled to make better investment decisions.

JEL Classification: G34

working papers series


Not Available For Download

Date posted: August 22, 1998  

Suggested Citation

Habib, Michel A. and Johnsen, D. Bruce and Naik, Narayan Y., Spin-Offs and Information (No Date ). Available at SSRN: http://ssrn.com/abstract=6918

Contact Information

Michel A. Habib (Contact Author)
University of Zurich ( email )
Plattenstrasse 14
Zurich, 8032
Switzerland
41-44-634-2507 (Phone)
41-44-634-4903 (Fax)
HOME PAGE: http://www.isb.uzh.ch/institut/profs/mhabib.htm
Swiss Finance Institute ( email )
c/o University of Geneve
40, Bd du Pont-d'Arve
1211 Geneva, CH-6900
Switzerland

D. Bruce Johnsen
George Mason University - School of Law ( email )
3301 Fairfax Drive
Arlington, VA 22201
United States
703-993-8066 (Phone)
703-993-8088 (Fax)
PERC - Property and Environment Research Center
2048 Analysis Drive
Suite A
Bozeman, MT 59718
United States

Narayan Y. Naik
London Business School - Institute of Finance and Accounting ( email )
Sussex Place
Regent's Park
London NW1 4SA
United Kingdom
+44 20 7262 5050 (Phone)
+44 20 724 3317 (Fax)
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