Spinoffs 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
J. OF FINANCIAL INTERMEDIATION, Vol. 6 No. 2
We present an information-based explanation for spinoffs. When the various divisions of a firm are spun off into several firms that have separate stock market listings, the number of traded securities increases. This makes the price system more informative. It improves the quality of the investment decisions made by managers, and reduces uninformed investors' uncertainty about the value of the divisions. Both effects serve to increase the sum-total of the market values of the spun-off divisions above the market value of the original firm.
JEL Classification: G14, G34
Date posted: June 9, 1997
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