Benefits of corporate spin-offs for companies and their shareholders - Evidence from US markets

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School of Business | Master's thesis

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Date

2014

Department

Rahoituksen laitos
Department of Finance

Major/Subject

Finance
Rahoitus

Mcode

Degree programme

Language

en

Pages

70

Series

Abstract

OBJECTIVES OF THE STUDY: In this thesis, I study spin-offs from the value creation and motivational point of view. Specifically, this paper studies how spin-offs create value for shareholders and companies during the spin-off announcement period and in the long-run, and whether spin-offs improve companies' profitability on average in the long-run. DATA AND METHODOLOGY: My full sample consists of 210 completed spin-off transactions made by US publicly listed companies between January 1994 and April 2014. The spin-off transaction data is collected form S&P Capital IQ database, stock market data is retrieved from Thomson One Banker and financial statement data is from Compustat database. From the full sample, 194 spin-offs are accepted to the short-term announcement period study, 135 to the long-run stock market performance study and 113 to the operational performance study. The announcement period study uses the market model event study method while the long-run stock market and operational performance studies use the matching firm approach. FINDINGS OF THE STUDY: My findings indicate that, on average, spin-offs create significant value for the companies' shareholders during the announcement period and in the long-run for up to three years following the spin-off. The findings also suggest that, following spin-offs, the demerged companies operationally outperform their matching firms. Further, I find that spin-offs increasing industry focus (i.e. a company spins off a subsidiary operating in a non-core industry) create more value than other spin-offs. To conclude, right kinds of spin-offs create value for the shareholders and offer a possibility for the companies to improve their operational performance.

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Keywords

Spin-offs, demerger, divestment, restructuring, corporate focus, industry focus

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https://urn.fi/URN:NBN:fi:aalto-201511054886

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[gradu] Kauppakorkeakoulu / BIZ