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

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). Meta‐analysis is used to summarize the findings of 26 event studies on spin‐off announcements. A significantly positive average abnormal return of 3.02% is found 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. It is also found that spin‐offs that are later completed are associated with lower abnormal returns than non‐completed spin‐offs. The second part of the paper overviews 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.

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