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Spinoffs, Privatization and Corporate Performance in Emerging Markets

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  • Jan Hanousek

    (CERGE-EI)

  • Evzen Kocenda

    (CERGE-EI)

  • Jan Svejnar

    (University of Michigan)

Abstract

We use new firm-level data to examine the effects of spinoffs and privatization on corporate performance in a rapidly emerging market economy. Unlike the existing literature, which analyzes spinoffs almost exclusively in advanced economies, we control for accompanying ownership changes and the fact that spinoffs and ownership are endogenous variables. We find that spinoffs increase the firm’s profitability but do not alter its scale of operations, while the effect of privatization depends on the resulting ownership structure – sometime improving performance and sometime bringing about decline that is consistent with tunneling (looting) by managers or (partial) owners. The effects of privatization are hence much less clear-cut than suggested in earlier studies. Methodologically, our study provides evidence that it is important to control for changes in ownership when analyzing spinoffs and generally to control for endogeneity, selection and data attrition when analyzing the effects of spinoffs and privatization.

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File URL: http://128.118.178.162/eps/mic/papers/0406/0406003.pdf
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Bibliographic Info

Paper provided by EconWPA in its series Microeconomics with number 0406003.

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Length: 31 pages
Date of creation: 04 Jun 2004
Date of revision:
Handle: RePEc:wpa:wuwpmi:0406003

Note: Type of Document - pdf; pages: 31
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Web page: http://128.118.178.162

Related research

Keywords: Spinoffs; breakups; privatization; corporate performance; endogeneity;

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References

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  1. Krishna B. Kumar & Raghuram G. Rajan & Luigi Zingales, . "What Determines Firm Size?," CRSP working papers 496, Center for Research in Security Prices, Graduate School of Business, University of Chicago.
  2. Robert Gertner & Eric Powers & David Scharfstein, 2002. "Learning about Internal Capital Markets from Corporate Spin-offs," Journal of Finance, American Finance Association, vol. 57(6), pages 2479-2506, December.
  3. McConnell, John J & Ozbilgin, Mehmet & Wahal, Sunil, 2001. "Spin-Offs, Ex Ante," The Journal of Business, University of Chicago Press, vol. 74(2), pages 245-80, April.
  4. Krishnaswami, Sudha & Subramaniam, Venkat, 1999. "Information asymmetry, valuation, and the corporate spin-off decision," Journal of Financial Economics, Elsevier, vol. 53(1), pages 73-112, July.
  5. Schipper, Katherine & Smith, Abbie, 1983. "Effects of recontracting on shareholder wealth : The case of voluntary spin-offs," Journal of Financial Economics, Elsevier, vol. 12(4), pages 437-467, December.
  6. Chemmanur, Thomas J. & Yan, An, 2004. "A theory of corporate spin-offs," Journal of Financial Economics, Elsevier, vol. 72(2), pages 259-290, May.
  7. Djankov, Simeon & Murrell, Peter, 2002. "Enterprise Restructuring in Transition: A Quantitative Survey," CEPR Discussion Papers 3319, C.E.P.R. Discussion Papers.
  8. Ahn, Seoungpil & Denis, David J., 2004. "Internal capital markets and investment policy: evidence from corporate spinoffs," Journal of Financial Economics, Elsevier, vol. 71(3), pages 489-516, March.
  9. Daley, Lane & Mehrotra, Vikas & Sivakumar, Ranjini, 1997. "Corporate focus and value creation Evidence from spinoffs," Journal of Financial Economics, Elsevier, vol. 45(2), pages 257-281, August.
  10. Jeffry M. Netter & William L. Megginson, 2001. "From State to Market: A Survey of Empirical Studies on Privatization," Journal of Economic Literature, American Economic Association, vol. 39(2), pages 321-389, June.
  11. Jan Svejnar & Miroslav Singer, 1994. "Using vouchers to privatize an economy: the Czech and Slovak case," The Economics of Transition, The European Bank for Reconstruction and Development, vol. 2(1), pages 43-69, 03.
  12. Lubomir Lizal & Miroslav Singer & Jan Svejnar, 2001. "Enterprise Breakups And Performance During The Transition From Plan To Market," The Review of Economics and Statistics, MIT Press, vol. 83(1), pages 92-99, February.
  13. Rosenfeld, James D, 1984. " Additional Evidence on the Relation between Divestiture Announcements and Shareholder Wealth," Journal of Finance, American Finance Association, vol. 39(5), pages 1437-48, December.
  14. 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.
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