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). We use meta-analysis to summarize the findings of 26 event studies on spin-off announcements. We find a significantly positive average abnormal return of 3.02% 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. We also find that spin-offs that are later completed are associated with lower abnormal returns than non-completed spin-offs. In the second part of the paper we overview 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.