Corporate Spinoffs and Information Asymmetry between Investors

Huson, Mark R.; MacKinnon, Greg H.

doi:10.2139/ssrn.262312

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Corporate Spinoffs and Information Asymmetry between Investors

37 Pages Posted: 15 Apr 2001

See all articles by Mark R. Huson

Mark R. Huson

University of Alberta - Department of Finance and Statistical Analysis

Greg H. MacKinnon

Saint Mary's University, Canada - Department of Finance, Information Systems & Management Science

Date Written: April 14, 2001

Abstract

We examine the effect of corporate spinoffs on the trading environment of the stock of firms that spinoff units. Spinoffs change the information environment of firms. The increased precision and quantity of information will change the relative advantage of informed traders. Consistent with increased information incorporation, residual return variance increases following spinoffs. Transaction costs and the price impact of trades are also higher in the quarter following spinoffs. These results are stronger for spinoffs where parent firms divest unrelated subsidiaries. Changes in the information environment associated with spinoffs appear to benefits informed traders at the expense of uninformed traders.

Keywords: spinoffs, information asymmetry, focus, transaction costs

JEL Classification: D82, G34

Suggested Citation: Suggested Citation

Huson, Mark R. and MacKinnon, Greg H., Corporate Spinoffs and Information Asymmetry between Investors (April 14, 2001). Available at SSRN: https://ssrn.com/abstract=262312 or http://dx.doi.org/10.2139/ssrn.262312