Liquidity Spillovers: Evidence from Two-Step Spinoffs

58 Pages Posted: 11 Feb 2021 Last revised: 20 Feb 2021

See all articles by Yakov Amihud

Yakov Amihud

New York University - Stern School of Business

Sahn-Wook Huh

State University of New York (SUNY) - Department of Finance

Avanidhar Subrahmanyam

University of California, Los Angeles (UCLA) - Finance Area; Institute of Global Finance, UNSW Business School; Financial Research Network (FIRN)

Date Written: January 7, 2021

Abstract

How does an idiosyncratic shock to the liquidity of a stock affect the liquidity and prices of related stocks? Utilizing the feature that the second stage of a two-step spinoff increases the float of an already-public firm, we document strong evidence that the enhanced liquidity of spun-off firms spills over to their industry peers after the spinoffs. These liquidity spillovers lead to value spillovers as well. The improved liquidity also induces greater pricing efficiency and larger institutional holdings in those stocks. The results provide support for the notion that the prices of spun-off firms provide additional public information about the related firms, thereby ameliorating information asymmetry in those firms.

Keywords: liquidity, asset pricing, spinoffs

JEL Classification: G12, G14, G34

Suggested Citation

Amihud, Yakov and Huh, Sahn-Wook and Subrahmanyam, Avanidhar, Liquidity Spillovers: Evidence from Two-Step Spinoffs (January 7, 2021). Available at SSRN: https://ssrn.com/abstract=3762175 or http://dx.doi.org/10.2139/ssrn.3762175

Yakov Amihud

New York University - Stern School of Business ( email )

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Sahn-Wook Huh

State University of New York (SUNY) - Department of Finance ( email )

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HOME PAGE: https://sites.google.com/site/sahnwookhuh/home

Avanidhar Subrahmanyam (Contact Author)

University of California, Los Angeles (UCLA) - Finance Area ( email )

Los Angeles, CA 90095-1481
United States
310-825-5355 (Phone)
310-206-5455 (Fax)

Institute of Global Finance, UNSW Business School

Sydney, NSW 2052
Australia

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

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