Private Information and Spin‐off Performance

Abstract

Following pro rata spin-offs, shareholders, including insiders, trade their stock holdings in public subsidiaries independently of trades in parent firms. This article examines the predictive ability of informed trading with respect to post-spin-off stock performance and corporate control transactions. I find that subsequent to spin-offs, insiders are substantial purchasers of stock in public subsidiaries and sellers in parent firms. The trades of insiders are significantly related to post-spin-off stock returns, takeovers, and delistings of spun-off firms. The results are highly significant for senior managers of public subsidiaries, but they do not generally hold for outside directors or large blockholders. Copyright 2001 by University of Chicago Press.

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