Can Takeover Losses Explain Spin-Off Gains?

Posted: 24 Aug 1998

See all articles by John J. McConnell

John J. McConnell

Purdue University

Jeffrey Allen

affiliation not provided to SSRN

Scott L. Lummer

Texas A&M University

Debra K. Reed

Texas A&M University

Abstract

This paper evaluates the conjecture that excess stock returns that have been documented around the announcement of corporate spin-offs represent, at least in part, the re-creation of value destroyed at the time of an earlier acquisition. We evaluate this question with a sample of spin-offs that originated as earlier acquisitions. At the time of the original acquisition, on average, announcement period returns to the bidder and the combined bidder and target firm are negative and significant. Additionally, announcement period returns at the time of the spin-off are negatively and significantly correlated with acquisition announcement period returns.

JEL Classification: G34

Suggested Citation

McConnell, John J. and Allen, Jeffrey and Lummer, Scott L. and Reed, Debra K., Can Takeover Losses Explain Spin-Off Gains?. Available at SSRN: https://ssrn.com/abstract=6753

John J. McConnell (Contact Author)

Purdue University ( email )

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Jeffrey Allen

affiliation not provided to SSRN

Scott L. Lummer

Texas A&M University

Langford Building A
798 Ross St.
College Station, TX 77843-3137
United States

Debra K. Reed

Texas A&M University

Langford Building A
798 Ross St.
College Station, TX 77843-3137
United States

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