Do spin-offs really create value? The European case

Citation

Veld C & Veld-Merkoulova YV (2004) Do spin-offs really create value? The European case. Journal of Banking and Finance, 28 (5), pp. 1111-1135. https://doi.org/10.1016/S0378-4266%2803%2900045-1

Abstract
We study wealth effects for a sample of 156 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 2.62%. This number increases to 2.66% for the subsequently completed spin-offs. The cumulative average abnormal return is 3.57% for completed spin-offs by companies that increase their industrial focus and only 0.76% for non-focus increasing companies. The difference between these two sub-samples is significantly different from zero. These results are in line with previous studies for the United States. The long-run returns in excess of matching firms are mostly insignificant for 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 superior performance.

Keywords
divestitures; spin-offs; event study; long-run excess returns; industrial focus

Journal
Journal of Banking and Finance: Volume 28, Issue 5