Value creation through spin-offs: A review of the empirical evidence

Citation

Veld C & Veld-Merkoulova YV (2009) Value creation through spin-offs: A review of the empirical evidence. International Journal of Management Reviews, 11 (4), pp. 407-420. https://doi.org/10.1111/j.1468-2370.2008.00243.x

Abstract
This paper reviews the literature on the factors that influence the wealth effects associated with the announcements of corporate spin-offs (also known as demergers). We use meta-analysis to summarize the findings of 26 event studies on spin-off announcements. We find a significantly positive average abnormal return of 3.02% during the event window. Returns are higher for larger spin-offs, for divestments that are tax or regulatory friendly and for spin-offs that lead to an improvement of industrial focus. We also find that spin-offs that are later completed are associated with lower abnormal returns than non-completed spin-offs. In the second part of the paper we overview studies on the long-run stock price performance of spin-offs. Even though early studies find a long-run superior performance, this effect is no longer found in later studies that use more refined statistical tests.

Keywords
spin-offs; demergers; value creation; event study; meta-analysis; long-run excess returns; industrial focus; Investments; Stockholders; Corporations Finance

Journal
International Journal of Management Reviews: Volume 11, Issue 4