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Do “captive” spin-offs create value? Evidence from Korea

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  • Kang, Hyung Cheol
  • Lee, Sangwon

Abstract

“Captive” spin-offs, in which the spun-off entity becomes a wholly-owned subsidiary of the parent, account for a vast majority of spin-off activities in Korea. Many practitioners have claimed that such spin-offs can be used by the firm’s controlling owner as a means of expropriating minority shareholders. We empirically show that, on average, a captive spin-off is followed by substantial decreases in both the stock price and operating performance of the parent firm, which is even more so the case when there is a significant conflict of interest between the controlling owner and minority shareholders.

Suggested Citation

  • Kang, Hyung Cheol & Lee, Sangwon, 2025. "Do “captive” spin-offs create value? Evidence from Korea," Finance Research Letters, Elsevier, vol. 85(PA).
    • Handle: RePEc:eee:finlet:v:85:y:2025:i:pa:s1544612325010840
    DOI: 10.1016/j.frl.2025.107826
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    References listed on IDEAS

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    Keywords

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    JEL classification:

    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance

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