An empirical analysis of the stockholder-bondholder conflict in corporate spin-offs

Citation

Veld C & Veld-Merkoulova YV (2008) An empirical analysis of the stockholder-bondholder conflict in corporate spin-offs. Financial Management, 37 (1), pp. 103-124. https://doi.org/10.1111/j.1755-053X.2008.00006.x

Abstract
We analyze the effect of daily stock and bond abnormal returns around spin-off announcements. Over a three-day event window, we find statistically significant abnormal returns of 3.07% for stocks and 0.11% for straight bonds. Both stock and bond abnormal returns are higher for firms with lower interest and dividend payouts. Stock abnormal returns are also higher for firms with higher pre-spin-off leverage. Overall, we find that the firm value increase compensates for the wealth transfer effect and that bondholders’ wealth is not reduced as a result of spin-off.

Keywords
Spin-off; Wealth transfer; Divestitures; Stockholders; Bondholders; Stocks Prices; Bonds Prices; Investment analysis

Journal
Financial Management: Volume 37, Issue 1