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Do spin-offs really create value? The European case

  • Veld, Chris
  • Veld-Merkoulova, Yulia V.

We study wealth effects for a sample of 161 spin-offs from 15 different European countries that were announced between January 1987 and September 2000. The cumulative average abnormal return over the three-day event window is 2.35%. The mean abnormal return is 2.89% for companies that increase their industrial focus and only 1.20% for non-focus increasing companies.These results are in line with previous studies for the United States.The long-run returns in excess of the market return are significantly negative for both parent and pro-forma combined firms.However, if we control for the size and book-to-market effects by creating a matching portfolio, we find mostly insignificant long-run excess returns both for focus-increasing and non-focus increasing parents, subsidiaries and pro-forma combined firms.This result suggests that, unlike U.S. spin-offs, European spin-offs are not associated with long-run outperformance.

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Article provided by Elsevier in its journal Journal of Banking & Finance.

Volume (Year): 28 (2004)
Issue (Month): 5 (May)
Pages: 1111-1135

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Handle: RePEc:eee:jbfina:v:28:y:2004:i:5:p:1111-1135
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