The Performance Effects of European Demergers
Centre for Economic Performance Discussion Paper No. 566
41 Pages Posted: 12 Sep 2003
Date Written: May 2003
This paper examines security price reactions of European demergers. For a period ranging from one and a half years prior to the demerger announcement through to three years after the execution date, the relative performance of the parent, spin-off and the combined effect is analysed relative to the overall market performance. Significant announcement effects were established for a sample of 48 European demergers. In addition, significant positive long-term value creation, in particular in year 2 after the demerger, was found for the spin-off but not for the parent firm. While size has, on average, a decisive but inverse impact on performance for both parent and spin-off, takeover activity does not.
Keywords: Corporate restructuring, demerger, spin-off
JEL Classification: L11, L25, M2
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