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Do spin-offs really create value? : The European case

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Author Info
Veld, C.
Veld-Merkoulova, V. (Tilburg University, Center for Economic Research)

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

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

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Related research
Keywords: spin-offs;

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Find related papers by JEL classification:
G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Capital and Ownership Structure
G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance

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References listed on IDEAS
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  5. Desai, Hemang & Jain, Prem C., 1999. "Firm performance and focus: long-run stock market performance following spinoffs," Journal of Financial Economics, Elsevier, vol. 54(1), pages 75-101, October. [Downloadable!] (restricted)
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  17. Miles, James A & Rosenfeld, James D, 1983. " The Effect of Voluntary Spin-Off Announcements on Shareholder Wealth," Journal of Finance, American Finance Association, vol. 38(5), pages 1597-1606, December. [Downloadable!] (restricted)
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Hvide, Hans K, 2005. "The Quality of Entrepreneurs," CEPR Discussion Papers 4979, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
    Other versions:
  2. Hvide, Hans K., 2004. "Firm Size and the Quality of Entrepreneurs," Discussion Papers 2004/9, Department of Finance and Management Science, Norwegian School of Economics and Business Administration. [Downloadable!]
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