The Effect of Corporate Break-Ups on Information Asymmetry: A Market Microstructure Analysis

55 Pages Posted: 4 Mar 2008 Last revised: 23 Dec 2019

See all articles by Söhnke M. Bartram

Söhnke M. Bartram

University of Warwick; Centre for Economic Policy Research (CEPR)

Florian Bardong

BlackRock

Pradeep K. Yadav

University of Oklahoma Price College of Business

Multiple version iconThere are 2 versions of this paper

Date Written: October 26, 2008

Abstract

This paper investigates the information environment during and after a corporate break-up utilizing direct measures of information asymmetry developed in the market microstructure literature. The analysis is based on all corporate break-ups in the United States in the period 1995-2005. The results document that information asymmetry declines significantly as a result of a break-up. However, this reduction takes place not at the time of its announcement or its completion, but after it has been fully consummated. At the same time, not all investors are equally affected, but informed investors who generate private information by skilled analysis of public information come to play a more important role compared to traditional corporate insiders. This might explain why financial advisers promote break-ups among their corporate clients, as they are likely beneficiaries. The positive stock-market reaction to break-up announcements is significantly related to reductions in insider-related information asymmetry, indicating that the advantage of skilled in-formation analysts does not offset the overall improvement in the information environment due to a break-up.

Keywords: Spin-off, Divestiture, Information asymmetry

JEL Classification: G14, G34

Suggested Citation

Bartram, Söhnke M. and Bardong, Florian and Yadav, Pradeep K., The Effect of Corporate Break-Ups on Information Asymmetry: A Market Microstructure Analysis (October 26, 2008). WBS Finance Group Research Paper No. 89, Available at SSRN: https://ssrn.com/abstract=1101781 or http://dx.doi.org/10.2139/ssrn.1101781

Söhnke M. Bartram

University of Warwick ( email )

Warwick Business School
Finance Group
Coventry, CV4 7AL
United Kingdom
+44 (24) 7657 4168 (Phone)
+1 425 952 1070 (Fax)

HOME PAGE: http://go.warwick.ac.uk/sbartram/

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

Florian Bardong

BlackRock ( email )

London
United Kingdom

Pradeep K. Yadav (Contact Author)

University of Oklahoma Price College of Business ( email )

307 W.Brooks, Room 3270 Division of Finance
Norman, OK 73019
United States
4053255591 (Phone)
4053255491 (Fax)

HOME PAGE: http://www.ou.edu/price/finance/faculty/pradeep_yadav.html

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