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Can Takeover Losses Explain Spin-Off Gains?

Author

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  • Allen, Jeffrey W.
  • Lummer, Scott L.
  • McConnell, John J.
  • Reed, Debra K.

Abstract

This paper evaluates the conjecture that excess stock returns that have been documented around the announcement of corporate spin-offs represent, at least in part, the re-creation of value destroyed at the time of an earlier acquisition. We evaluate this question with a sample of spin-offs that originated as earlier acquisitions. At the time of the original acquisition, on average, announcement period returns to the bidder and the combined bidder and target firm are negative and significant. Additionally, announcement period returns at the time of the spin-off are negatively and significantly correlated with acquisition announcement period returns.

Suggested Citation

  • 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.
  • Handle: RePEc:cup:jfinqa:v:30:y:1995:i:04:p:465-485_00
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    Cited by:

    1. Sheng-Syan Chen & I-Ju Chen, 2011. "Inefficient Investment and the Diversification Discount: Evidence from Corporate Asset Purchases," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 38(7-8), pages 887-914, September.
    2. Jain, Bharat A. & Kini, Omesh & Shenoy, Jaideep, 2011. "Vertical divestitures through equity carve-outs and spin-offs: A product markets perspective," Journal of Financial Economics, Elsevier, vol. 100(3), pages 594-615, June.
    3. Barbara Rovetta, 2006. "Investment Policies and Excess Returns in Corporate Spin-offs: Evidence from the US Market," Financial Markets and Portfolio Management, Springer;Swiss Society for Financial Market Research, vol. 20(3), pages 287-307, September.
    4. repec:spr:scient:v:102:y:2015:i:3:d:10.1007_s11192-014-1495-0 is not listed on IDEAS
    5. repec:kap:jmgtgv:v:22:y:2018:i:1:d:10.1007_s10997-017-9384-6 is not listed on IDEAS
    6. Owen, Sian & Yawson, Alfred, 2006. "Domestic or international: Divestitures in Australian multinational corporations," Global Finance Journal, Elsevier, vol. 17(2), pages 282-293, December.
    7. Narayanan, V.K. & Yang, Yi & Zahra, Shaker A., 2009. "Corporate venturing and value creation: A review and proposed framework," Research Policy, Elsevier, vol. 38(1), pages 58-76, February.
    8. Chemmanur, Thomas J. & Yan, An, 2004. "A theory of corporate spin-offs," Journal of Financial Economics, Elsevier, vol. 72(2), pages 259-290, May.
    9. Robinson, W.T. & Min, S., 1998. "Is the First to Market the First to fail?: Empirical Evidence for Manufacturing Business," Purdue University Economics Working Papers 1115, Purdue University, Department of Economics.
    10. 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.
    11. Stanislava Todorova, 2016. "Transformation of commercial companies: global and national aspects," Economic Thought journal, Bulgarian Academy of Sciences - Economic Research Institute, issue 6, pages 75-96.
    12. Clark Wheatley & Robert Brown & George Johnson, 2005. "Line-of-Business Disclosures and Spin-Off Announcement Returns," Review of Quantitative Finance and Accounting, Springer, vol. 24(3), pages 277-293, May.
    13. Chemmanur, Thomas J. & Liu, Mark H., 2011. "Institutional trading, information production, and the choice between spin-offs, carve-outs, and tracking stock issues," Journal of Corporate Finance, Elsevier, vol. 17(1), pages 62-82, February.
    14. 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.
    15. Huang, Sheng, 2014. "Managerial expertise, corporate decisions and firm value: Evidence from corporate refocusing," Journal of Financial Intermediation, Elsevier, vol. 23(3), pages 348-375.
    16. Prezas, Alexandros P. & Simonyan, Karen, 2015. "Corporate divestitures: Spin-offs vs. sell-offs," Journal of Corporate Finance, Elsevier, vol. 34(C), pages 83-107.
    17. Megginson, William L. & Morgan, Angela & Nail, Lance, 2004. "The determinants of positive long-term performance in strategic mergers: Corporate focus and cash," Journal of Banking & Finance, Elsevier, vol. 28(3), pages 523-552, March.
    18. Slovin, Myron B. & Sushka, Marie E., 1998. "The economics of parent-subsidiary mergers:: an empirical analysis," Journal of Financial Economics, Elsevier, vol. 49(2), pages 255-279, August.
    19. Dmitri Boreiko & Maurizio Murgia, 2013. "European spin-offs Origin, value creation, and long-term performance," BEMPS - Bozen Economics & Management Paper Series BEMPS05, Faculty of Economics and Management at the Free University of Bozen.

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