Institutional Investor Preferences and Price Pressure: The Case of Corporate Spin-Offs
45 Pages Posted: 25 Jun 2001
Date Written: June 2001
Corporate spin-offs create new firms with characteristics markedly different from the original firm. Consequently, institutional investors pre-committed to certain investment styles and/or subject to fiduciary restrictions have incentives to rebalance their portfolios at the time of the spin-off. We find strong evidence that investment strategy and fiduciary restrictions affect institutional investor demand for stocks after spin-offs. However, contrary to prior research that conjectures that large volumes of trading related to investor preferences creates short-term price pressure in the stocks of entities emerging from spin-off transactions, we find that, in general, this trading is not associated with abnormal price movements for parents or subsidiaries around the spin-off event.
Keywords: Price pressure, institutional investors, corporate spin-offs
JEL Classification: G11, G14, G20, G34
Suggested Citation: Suggested Citation