Value Creation Through Spin-Offs: A Review of the Empirical Evidence
28 Pages Posted: 31 May 2006 Last revised: 17 Apr 2008
Date Written: March 26, 2008
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: Suggested Citation