IDEAS home Printed from
MyIDEAS: Log in (now much improved!) to save this article

The wealth effects of cross-border spinoffs

  • Harris, Oneil
  • Glegg, Charmaine
Registered author(s):

    This paper examines the stock price reaction to cross-border spinoff announcements and investigates whether country characteristics (such as takeover market liquidity and investor protection) cause variation in the announcements' wealth effects. We observe a positive and significant price response to cross-border spinoff announcements. The wealth effects are higher when subsidiaries are located in countries with more active takeover markets. This result implies that investors could expect the newly spun-off companies to become takeover targets. Abnormal returns are lower when subsidiaries are located in countries with weaker investor protection relative to the home country of the parent multinational. We infer that cross-border spinoffs that result in adverse changes in investor protection elicit lower wealth effects. The implications for managers are that spinning off units in foreign markets could generate wealth for parent shareholders, whereas the characteristics of the markets in which the units are spun-off matter to investors.

    If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

    File URL:
    Download Restriction: Full text for ScienceDirect subscribers only

    As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.

    Article provided by Elsevier in its journal Journal of Multinational Financial Management.

    Volume (Year): 18 (2008)
    Issue (Month): 5 (December)
    Pages: 461-476

    in new window

    Handle: RePEc:eee:mulfin:v:18:y:2008:i:5:p:461-476
    Contact details of provider: Web page:

    References listed on IDEAS
    Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

    as in new window
    1. Veld, C.H. & Merkoulova, Y.V., 2001. "Do Spin-offs really Create Value? The European Case," Discussion Paper 2001-76, Tilburg University, Center for Economic Research.
    2. Daley, Lane & Mehrotra, Vikas & Sivakumar, Ranjini, 1997. "Corporate focus and value creation Evidence from spinoffs," Journal of Financial Economics, Elsevier, vol. 45(2), pages 257-281, August.
    3. La Porta, Rafael & Lopez-de-Silanes, Florencio & Shleifer, Andrei & Vishny, Robert W., 1998. "Law and Finance," Scholarly Articles 3451310, Harvard University Department of Economics.
    4. Habib, Michel A. & Johnsen, D. Bruce & Naik, Narayan Y., 1997. "Spinoffs and Information," Journal of Financial Intermediation, Elsevier, vol. 6(2), pages 153-176, April.
    5. Dyck, Alexander & Zingales, Luigi, 2002. "Private Benefits of Control: An International Comparison," CEPR Discussion Papers 3177, C.E.P.R. Discussion Papers.
    6. Chemmanur, Thomas J. & Yan, An, 2004. "A theory of corporate spin-offs," Journal of Financial Economics, Elsevier, vol. 72(2), pages 259-290, May.
    7. Ahn, Seoungpil & Walker, Mark D., 2007. "Corporate governance and the spinoff decision," Journal of Corporate Finance, Elsevier, vol. 13(1), pages 76-93, March.
    8. 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.
    9. Moeller, Sara B. & Schlingemann, Frederik P., 2005. "Global diversification and bidder gains: A comparison between cross-border and domestic acquisitions," Journal of Banking & Finance, Elsevier, vol. 29(3), pages 533-564, March.
    10. Rafael LaPorta & Florencio Lopez-de-Silanes & Andrei Shleifer & Robert W. Vishny, . "Legal Determinants of External Finance," Working Paper 19443, Harvard University OpenScholar.
    11. La Porta, Rafael & Lopez-de-Silanes, Florencio & Shleifer, Andrei & Vishny, Robert, 2000. "Investor protection and corporate governance," Journal of Financial Economics, Elsevier, vol. 58(1-2), pages 3-27.
    12. 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.
    13. Ahn, Seoungpil & Denis, David J., 2004. "Internal capital markets and investment policy: evidence from corporate spinoffs," Journal of Financial Economics, Elsevier, vol. 71(3), pages 489-516, March.
    14. Rafael La Porta & Florencio Lopez-De-Silanes & Andrei Shleifer, 1999. "Corporate Ownership Around the World," Journal of Finance, American Finance Association, vol. 54(2), pages 471-517, 04.
    15. Shleifer, Andrei & Wolfenzon, Daniel, 2002. "Investor protection and equity markets," Journal of Financial Economics, Elsevier, vol. 66(1), pages 3-27, October.
    16. Rafael La Porta & Florencio Lopez-de-Silanes & Andrei Shleifer & Robert Vishny, 1999. "Investor Protection and Corporate Valuation," Harvard Institute of Economic Research Working Papers 1882, Harvard - Institute of Economic Research.
    17. Desai, Hemang & Jain, Prem C., 1999. "Firm performance and focus: long-run stock market performance following spinoffs," Journal of Financial Economics, Elsevier, vol. 54(1), pages 75-101, October.
    18. Choi, Dosoung, 1991. "Toehold Acquisitions, Shareholder Wealth, and the Market for Corporate Control," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 26(03), pages 391-407, September.
    19. Jeffery S. Abarbanell & Brian J. Bushee & Jana Smith Raedy, 2003. "Institutional Investor Preferences and Price Pressure: The Case of Corporate Spin-Offs," The Journal of Business, University of Chicago Press, vol. 76(2), pages 233-262, April.
    Full references (including those not matched with items on IDEAS)

    This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

    When requesting a correction, please mention this item's handle: RePEc:eee:mulfin:v:18:y:2008:i:5:p:461-476. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Shamier, Wendy)

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If references are entirely missing, you can add them using this form.

    If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.