Liquidity Spillovers: Evidence from Two-Step Spinoffs
58 Pages Posted: 11 Feb 2021 Last revised: 20 Feb 2021
Date Written: January 7, 2021
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: Suggested Citation