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Do Spin-offs really Create Value? The European Case

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  • Veld, C.H.
  • Merkoulova, Y.V.

    (Tilburg University, Center for Economic Research)

Abstract

We study wealth effects for a sample of 161 spin-offs from 15 different European countries that were announced between January 1987 and September 2000. The cumulative average abnormal return over the three-day event window is 2.35%. The mean abnormal return is 2.89% for companies that increase their industrial focus and only 1.20% for non-focus increasing companies.These results are in line with previous studies for the United States.The long-run returns in excess of the market return are significantly negative for both parent and pro-forma combined firms.However, if we control for the size and book-to-market effects by creating a matching portfolio, we find mostly insignificant long-run excess returns both for focus-increasing and non-focus increasing parents, subsidiaries and pro-forma combined firms.This result suggests that, unlike U.S. spin-offs, European spin-offs are not associated with long-run outperformance.

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Bibliographic Info

Paper provided by Tilburg University, Center for Economic Research in its series Discussion Paper with number 2001-76.

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Date of creation: 2001
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Handle: RePEc:dgr:kubcen:200176

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Web page: http://center.uvt.nl

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Keywords: return on investment; spin-offs;

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Citations

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Cited by:
  1. Harris, Oneil & Glegg, Charmaine, 2008. "The wealth effects of cross-border spinoffs," Journal of Multinational Financial Management, Elsevier, vol. 18(5), pages 461-476, December.
  2. Dmitri Boreiko & Maurizio Murgia, 2013. "European spin-offs Origin, value creation, and long-term performance," BEMPS - Bozen Economics & Management Paper Series BEMPS05, School of Economics and Management at the Free University of Bozen.
  3. Hvide, Hans K, 2005. "The Quality of Entrepreneurs," CEPR Discussion Papers 4979, C.E.P.R. Discussion Papers.
  4. Chemmanur, Thomas J. & Jordan, Bradford D. & Liu, Mark H. & Wu, Qun, 2010. "Antitakeover provisions in corporate spin-offs," Journal of Banking & Finance, Elsevier, vol. 34(4), pages 813-824, April.
  5. Hvide, Hans K., 2004. "Firm Size and the Quality of Entrepreneurs," Discussion Papers 2004/9, Department of Business and Management Science, Norwegian School of Economics.
  6. Harris, Oneil & Madura, Jeff, 2010. "Cause and effects of poison pill adoptions by spinoff units," Journal of Economics and Business, Elsevier, vol. 62(4), pages 307-330, July.
  7. Chan, Konan & Ikenberry, David L. & Lee, Inmoo, 2007. "Do managers time the market? Evidence from open-market share repurchases," Journal of Banking & Finance, Elsevier, vol. 31(9), pages 2673-2694, September.
  8. Carretta, Alessandro & Farina, Vincenzo & Graziano, Elvira Anna & Reale, Marco, 2011. "Does investor attention influence stock market activity? The case of spin-off deals," MPRA Paper 33545, University Library of Munich, Germany.

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