14 Pages Posted: 28 Oct 2009
This paper reviews the literature on the factors that influence the wealth effects associated with the announcements of corporate spin-offs (also known as demergers). Meta-analysis is used to summarize the findings of 26 event studies on spin-off announcements. A significantly positive average abnormal return of 3.02% is found during the event window. Returns are higher for larger spin-offs, for divestments that are tax or regulatory friendly and for spin-offs that lead to an improvement of industrial focus. It is also found that spin-offs that are later completed are associated with lower abnormal returns than non-completed spin-offs. The second part of the paper overviews studies on the long-run stock price performance of spin-offs. Even though early studies find a long-run superior performance, this effect is no longer found in later studies that use more refined statistical tests.
Suggested Citation: Suggested Citation
Veld, Chris and Veld-Merkoulova, Yulia V., Value Creation Through Spin-Offs: A Review of the Empirical Evidence. International Journal of Management Reviews, Vol. 11, Issue 4, pp. 407-420, December 2009. Available at SSRN: https://ssrn.com/abstract=1495277 or http://dx.doi.org/10.1111/j.1468-2370.2008.00243.x
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