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The Long‐Run Performance of Sponsored and Conventional Spin‐Offs

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  • April Klein
  • James Rosenfeld

Abstract

A sponsored spin‐off takes place when an equity stake in a subsidiary is sold to an outside investor before going public. The stock return performance of a sample of 57 sponsored spin‐offs from 1994 to 2005 is significantly negative over a three‐year period following the spin‐off date. The parent firms' stock performance for the year preceding (following) the spin‐off date are below average (average) suggesting that their earlier performances were adversely affected by their subsidiaries and motivated the parents to spin them off. We also find that parent firms underinvest in the subsidiary prior to the spin‐off, which could have motivated the subsidiary to seek outside funding sources before going public.

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  • April Klein & James Rosenfeld, 2010. "The Long‐Run Performance of Sponsored and Conventional Spin‐Offs," Financial Management, Financial Management Association International, vol. 39(1), pages 227-247, March.
    • Handle: RePEc:bla:finmgt:v:39:y:2010:i:1:p:227-247
    DOI: 10.1111/j.1755-053X.2010.01071.x
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    Cited by:

    1. Feng, Yi & Nandy, Debarshi K. & Tian, Yisong S., 2015. "Executive compensation and the corporate spin-off decision," Journal of Economics and Business, Elsevier, vol. 77(C), pages 94-117.
    2. Naaguesh Appadu & Anna Faelten & Mario Levis, 2013. "Acquisitions, SEOs, divestitures and IPO performance," Chapters, in: Mario Levis & Silvio Vismara (ed.), Handbook of Research on IPOs, chapter 17, pages 347-374, Edward Elgar Publishing.
    3. Ying Lin & Kenneth Yung, 2014. "Earnings management and corporate spinoffs," Review of Quantitative Finance and Accounting, Springer, vol. 43(2), pages 275-300, August.
    4. Vitkova, Valeriya & Tian, Siyang & Sudarsanam, Sudi, 2023. "Allocative efficiency of internal capital markets: Evidence from equity carve-outs by diversified firms," International Review of Financial Analysis, Elsevier, vol. 86(C).
    5. Nazir Saima & Chisti Khalid, 2023. "Corporate Spin-Offs and Shareholders’ Wealth: A Systematic Review and Future Research Agenda," Acta Universitatis Sapientiae, Economics and Business, Sciendo, vol. 11(1), pages 42-63, October.

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