Spinoffs and Information

J. OF FINANCIAL INTERMEDIATION, Vol. 6 No. 2

Posted: 9 Jun 1997  

Michel A. Habib

University of Zurich; Ecole Polytechnique Fédérale de Lausanne - Ecole Polytechnique Fédérale de Lausanne

D. Bruce Johnsen

George Mason University - School of Law; PERC - Property and Environment Research Center

Narayan Y. Naik

London Business School - Institute of Finance and Accounting

Abstract

We present an information-based explanation for spinoffs. When the various divisions of a firm are spun off into several firms that have separate stock market listings, the number of traded securities increases. This makes the price system more informative. It improves the quality of the investment decisions made by managers, and reduces uninformed investors' uncertainty about the value of the divisions. Both effects serve to increase the sum-total of the market values of the spun-off divisions above the market value of the original firm.

JEL Classification: G14, G34

Suggested Citation

Habib, Michel A. and Johnsen, D. Bruce and Naik, Narayan Y., Spinoffs and Information. J. OF FINANCIAL INTERMEDIATION, Vol. 6 No. 2. Available at SSRN: https://ssrn.com/abstract=8355

Michel A. Habib

University of Zurich ( email )

Plattenstrasse 14
Zurich, 8032
Switzerland
41-44-634-2507 (Phone)
41-44-634-4903 (Fax)

HOME PAGE: http://www.isb.uzh.ch/institut/profs/mhabib.htm

Ecole Polytechnique Fédérale de Lausanne - Ecole Polytechnique Fédérale de Lausanne ( email )

c/o University of Geneve
40, Bd du Pont-d'Arve
1211 Geneva, CH-6900
Switzerland

D. Bruce Johnsen

George Mason University - School of Law ( email )

3301 Fairfax Drive
Arlington, VA 22201
United States
703-993-8066 (Phone)
703-993-8088 (Fax)

PERC - Property and Environment Research Center

2048 Analysis Drive
Suite A
Bozeman, MT 59718
United States

Narayan Y. Naik (Contact Author)

London Business School - Institute of Finance and Accounting ( email )

Sussex Place
Regent's Park
London NW1 4SA
United Kingdom
+44 20 7262 5050 (Phone)
+44 20 724 3317 (Fax)

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