Value Creation Through Spin-Offs: A Review of the Empirical Evidence

28 Pages Posted: 31 May 2006 Last revised: 17 Apr 2008

See all articles by Chris Veld

Chris Veld

Monash University

Yulia V. Veld-Merkoulova

Monash University - Department of Finance; Financial Research Network (FIRN)

Date Written: March 26, 2008

Abstract

This paper reviews the literature on the factors that influence the wealth effects associated with the announcements of corporate spin-offs. We use meta-analysis to summarize the findings of 26 event studies on spin-off announcements. We find a significantly positive average abnormal return of 3.02% during the event window. Returns are higher for larger spin-offs, for divestments that are tax or regulatory friendly and for spin-offs that lead to the divestiture of a non-related division. We also find that spin-offs that are later completed are associated with lower abnormal returns than non-completed spin-offs. In the second part of the paper we overview studies on the long-run stock price performance of spin-offs. Even though early studies find a long-run superior performance, this effect is no longer found in later studies that use more refined statistical tests.

Keywords: spin-offs, demergers, value creation, event study, meta-analysis, long-run excess returns, industrial focus

JEL Classification: G32, G34

Suggested Citation

Veld, Chris and Veld-Merkoulova, Yulia V., Value Creation Through Spin-Offs: A Review of the Empirical Evidence (March 26, 2008). Available at SSRN: https://ssrn.com/abstract=905137 or http://dx.doi.org/10.2139/ssrn.905137

Chris Veld (Contact Author)

Monash University ( email )

Building 11E
Clayton, Victoria 3800
Australia

Yulia V. Veld-Merkoulova

Monash University - Department of Finance ( email )

Building H
Caulfield, Victoria 3145
Australia

Financial Research Network (FIRN) ( email )

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

Do you have negative results from your research you’d like to share?

Paper statistics

Downloads
2,684
Abstract Views
10,113
Rank
9,415
PlumX Metrics