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Value creation through spin-offs: a review of the empirical evidence

By C. Veld and Y. Veld-Merkoulova

Abstract

This paper reviews the literature on the factors that influence the wealth effects associated with the announcements of corporate spin-offs (also known as demergers). Meta-analysis is used to summarize the findings of 26 event studies on spin-off announcements. A significantly positive average abnormal return of 3.02% is found 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 an improvement of industrial focus. It is also found that spin-offs that are later completed are associated with lower abnormal returns than non-completed spin-offs. The second part of the paper overviews 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

Topics: HG, HB
Publisher: 'Wiley'
Year: 2009
DOI identifier: 10.1111/j.1468-2370.2008.00243.x
OAI identifier: oai:eprints.gla.ac.uk:52391
Provided by: Enlighten
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