Spinoffs and Information
J. OF FINANCIAL INTERMEDIATION, Vol. 6 No. 2
Posted: 9 Jun 1997
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: Suggested Citation