Institutional Investor Preferences and Price Pressure: The Case of Corporate Spin-Offs

Posted: 11 Jul 2001

See all articles by Jeffery S. Abarbanell

Jeffery S. Abarbanell

University of North Carolina (UNC) at Chapel Hill - Finance Area

Brian J. Bushee

University of Pennsylvania - The Wharton School

Jana Smith Raedy

University of North Carolina at Chapel Hill

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Abstract

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

Abarbanell, Jeffery S. and Bushee, Brian J. and Smith Raedy, Jana, Institutional Investor Preferences and Price Pressure: The Case of Corporate Spin-Offs. Available at SSRN: https://ssrn.com/abstract=276008

Jeffery S. Abarbanell

University of North Carolina (UNC) at Chapel Hill - Finance Area ( email )

Kenan-Flagler Business School
Chapel Hill, NC 27599-3490
United States

Brian J. Bushee

University of Pennsylvania - The Wharton School ( email )

3641 Locust Walk
Philadelphia, PA 19104-6365
United States
215-898-4872 (Phone)
215-573-2054 (Fax)

Jana Smith Raedy (Contact Author)

University of North Carolina at Chapel Hill ( email )

McColl Building
Chapel Hill, NC 27599-3490
United States
919-962-7475 (Phone)
919-962-4727 (Fax)

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