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Withdrawn Spin-Offs: An Empirical Analysis

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  • Kasim Alli
  • Gabriel G. Ramírez
  • Kenneth K. Yung

Abstract

We examine market reaction to corporate spin-offs that are eventually withdrawn. These spin-offs do not experience the significant positive share price response reported for spin-offs generally. The overall market reaction to both the initial spin-off announcement and the withdrawal announcement is not significant. When a reason is provided for withdrawing a spin-off, there is a significant positive market reaction, otherwise, there is a significant negative reaction. Firms that withdraw a spin-off without stating a reason experience significant deterioration in industry-adjusted operating performance in the three years following the withdrawal. These results indicate the market is able to anticipate the viability of withdrawn spin-offs at the time of the initial announcement.
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Suggested Citation

  • Kasim Alli & Gabriel G. Ramírez & Kenneth K. Yung, 2001. "Withdrawn Spin-Offs: An Empirical Analysis," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 24(4), pages 603-616, December.
  • Handle: RePEc:bla:jfnres:v:24:y:2001:i:4:p:603-616
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    File URL: http://hdl.handle.net/10.1111/j.1475-6803.2001.tb00833.x
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    References listed on IDEAS

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    1. Scholes, Myron & Williams, Joseph, 1977. "Estimating betas from nonsynchronous data," Journal of Financial Economics, Elsevier, vol. 5(3), pages 309-327, December.
    2. Dennis T. Officer & Richard L. Smith II, 1986. "Announcement Effects Of Withdrawn Security Offerings: Evidence On The Wealth Redistribution Hypothesis," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 9(3), pages 229-238, September.
    3. Allen, Jeffrey W. & Lummer, Scott L. & McConnell, John J. & Reed, Debra K., 1995. "Can Takeover Losses Explain Spin-Off Gains?," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 30(04), pages 465-485, December.
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    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. Shane A. Johnson & Daniel P. Klein & Verne L. Thibodeaux, 1996. "The Effects Of Spin-Offs On Corporate Investment And Performance," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 19(2), pages 293-307, June.
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    8. Cusatis, Patrick J. & Miles, James A. & Woolridge, J. Randall, 1993. "Restructuring through spinoffs*1: The stock market evidence," Journal of Financial Economics, Elsevier, vol. 33(3), pages 293-311, June.
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    Cited by:

    1. Harris, Oneil & Madura, Jeff, 2011. "Why are proposed spinoffs withdrawn?," The Quarterly Review of Economics and Finance, Elsevier, vol. 51(1), pages 69-81, February.

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