Value Creation Through Spin-Offs: A Review of the Empirical Evidence
Yulia V. Veld-Merkoulova
Monash University - Department of Finance; Financial Research Network (FIRN)
International Journal of Management Reviews, Vol. 11, Issue 4, pp. 407-420, December 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.
Number of Pages in PDF File: 14
Date posted: October 28, 2009