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The Effect of Corporate Break-ups on Information Asymmetry: A Market Microstructure Analysis

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  • Bardong, Florian
  • Bartram, Söhnke M.
  • Yadav, Pradeep K.

Abstract

This paper investigates the information environment during and after a corporate break-up utilizing direct measures of information asymmetry developed in the market microstructure literature. The analysis is based on all corporate break-ups in the United States in the period 1995-2005. The results document that information asymmetry declines significantly as a result of a break-up. However, this reduction takes place not at the time of its announcement or its completion, but after it has been fully consummated. At the same time, not all investors are equally affected, but informed investors who generate private information by skilled analysis of public information come to play a more important role compared to traditional corporate insiders. This might explain why financial advisors promote break-ups among their corporate clients, as they are likely beneficiaries. The positive stock-market reaction to break-up announcements is significantly related to reductions in insider-related information asymmetry, indicating that the advantage of skilled information analysts does not offset the overall improvement in the information environment due to a break-up.

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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 13155.

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Date of creation: 11 Sep 2006
Date of revision: 26 Oct 2008
Handle: RePEc:pra:mprapa:13155

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Keywords: Spin-off; Divestiture; Information asymmetry;

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Cited by:
  1. Igor Filatotchev & Xiaoxiang Zhang & Jenifer Piesse, 2011. "Multiple agency perspective, family control, and private information abuse in an emerging economy," Asia Pacific Journal of Management, Springer, vol. 28(1), pages 69-93, March.

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