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Do spin-offs really create value? The European case

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

Abstract

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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  • Veld, Chris & Veld-Merkoulova, Yulia V., 2004. "Do spin-offs really create value? The European case," Journal of Banking & Finance, Elsevier, vol. 28(5), pages 1111-1135, May.
  • Handle: RePEc:eee:jbfina:v:28:y:2004:i:5:p:1111-1135
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    Cited by:

    1. Harris, Oneil & Glegg, Charmaine, 2008. "The wealth effects of cross-border spinoffs," Journal of Multinational Financial Management, Elsevier, vol. 18(5), pages 461-476, December.
    2. Forcadell, Francisco Javier & Sanchez-Riofrio, Angelica & Guerras-Martín, Luis Ángel & Romero-Jordán, Desiderio, 2020. "Is the restructuring-performance relationship moderated by the economic cycle and the institutional environment for corporate governance?," Journal of Business Research, Elsevier, vol. 110(C), pages 397-407.
    3. HansK. Hvide, 2009. "The Quality of Entrepreneurs," Economic Journal, Royal Economic Society, vol. 119(539), pages 1010-1035, July.
    4. Chan, Konan & Ikenberry, David L. & Lee, Inmoo, 2007. "Do managers time the market? Evidence from open-market share repurchases," Journal of Banking & Finance, Elsevier, vol. 31(9), pages 2673-2694, September.
    5. Daniel Chai & Ziyang Lin & Chris Veld, 2018. "Value-creation through spin-offs: Australian evidence," Australian Journal of Management, Australian School of Business, vol. 43(3), pages 353-372, August.
    6. Alessandro Carretta & Vincenzo Farina & Elvira Anna Graziano & Marco Reale, 2013. "Does Investor Attention Influence Stock Market Activity? The Case of Spin-Off Deals," Palgrave Macmillan Studies in Banking and Financial Institutions, in: Alessandro Carretta & Gianluca Mattarocci (ed.), Asset Pricing, Real Estate and Public Finance over the Crisis, chapter 1, pages 7-24, Palgrave Macmillan.
    7. Chemmanur, Thomas J. & Jordan, Bradford D. & Liu, Mark H. & Wu, Qun, 2010. "Antitakeover provisions in corporate spin-offs," Journal of Banking & Finance, Elsevier, vol. 34(4), pages 813-824, April.
    8. Martynova, M. & Renneboog, L.D.R., 2005. "Takeover Waves : Triggers, Performance and Motives," Discussion Paper 2005-029, Tilburg University, Tilburg Law and Economic Center.
    9. Vinay Patel, 2015. "Price Discovery in US and Australian Stock and Options Markets," PhD Thesis, Finance Discipline Group, UTS Business School, University of Technology, Sydney, number 27, July-Dece.
    10. P. A. Padmanabhan, 2018. "Do Demerger Announcements Impact Shareholders Wealth? An Empirical Analysis Using Event Study," Vision, , vol. 22(1), pages 22-31, March.
    11. Miriam Flickinger & Miriam Zschoche, 2018. "Corporate divestiture and performance: an institutional view," Journal of Management & Governance, Springer;Accademia Italiana di Economia Aziendale (AIDEA), vol. 22(1), pages 111-131, March.
    12. Han-Ching Huang & Yong-Chern Su & Chun-E Shih, 2015. "Evidence On The Speed Of Convergence To Market Efficiency: Evidence From Stock Spin-Offs," Global Journal of Business Research, The Institute for Business and Finance Research, vol. 9(2), pages 1-8.
    13. Louis Murray, 2008. "Spin‐offs in an Environment of Bank Debt," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 35(3‐4), pages 406-433, April.
    14. Chris Veld & Yulia V. Veld‐Merkoulova, 2008. "An Empirical Analysis of the Stockholder‐Bondholder Conflict in Corporate Spin‐Offs," Financial Management, Financial Management Association International, vol. 37(1), pages 103-124, March.
    15. 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.
    16. Angélica María Sánchez-Riofrío & Luis Ángel Guerras-Martín & Francisco Javier Forcadell, 2015. "Business portfolio restructuring: a comprehensive bibliometric review," Scientometrics, Springer;Akadémiai Kiadó, vol. 102(3), pages 1921-1950, March.
    17. Christian Toll, 2018. "Zur Bewertung einer Unternehmensspaltung aus Sicht der Anteilseigner des zu spaltenden Unternehmens [Valuation of a Corporate Demerger from the Shareholders’ Point of View]," Schmalenbach Journal of Business Research, Springer, vol. 70(1), pages 155-204, March.
    18. Camelia Mirela Baba & Constantin Duguleană & Marius Sorin Dincă & Liliana Duguleană & Gheorghița Dincă, 2021. "The Demerger Impact upon Sustainable Development of Economic Entities: Evidence from Romania," Sustainability, MDPI, vol. 13(15), pages 1-15, July.
    19. A. Jongbloed, 2004. "Spin-Offs. Implications for Corporate Policies," Review of Business and Economic Literature, KU Leuven, Faculty of Economics and Business (FEB), Review of Business and Economic Literature, vol. 0(4), pages 569-588.
    20. Meijui Sun, 2012. "Impact Of Divestiture Activities On Corporate Performance: Evidence From Listed Firms In Taiwan," The International Journal of Business and Finance Research, The Institute for Business and Finance Research, vol. 6(2), pages 59-67.
    21. Harris, Oneil & Madura, Jeff, 2010. "Cause and effects of poison pill adoptions by spinoff units," Journal of Economics and Business, Elsevier, vol. 62(4), pages 307-330, July.
    22. Martynova, M., 2006. "The market for corporate control and corporate governance regulation in Europe," Other publications TiSEM 8651e281-4914-41f2-ac14-1, Tilburg University, School of Economics and Management.
    23. 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.
    24. Vinay Patel, 2015. "Price Discovery in US and Australian Stock and Options Markets," PhD Thesis, Finance Discipline Group, UTS Business School, University of Technology, Sydney, number 6-2015.
    25. Hvide, Hans K., 2004. "Firm Size and the Quality of Entrepreneurs," Discussion Papers 2004/9, Norwegian School of Economics, Department of Business and Management Science.

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    More about this item

    JEL classification:

    • 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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