To Spin Off or Not To Spin Off?

Sammanfattning

This study investigates the value creation of U.S. spin-offs undertaken between 2010 and 2017 from three perspectives. Firstly, shareholder wealth creation is analyzed through tests on unadjusted abnormal announcement-day returns and unadjusted abnormal long-term returns. Secondly, shareholder wealth creation is assessed from an investment management perspective through tests on risk-adjusted abnormal long-term returns using the Sharpe ratio. Thirdly, operating performance following spin-offs is examined from an internal corporate perspective through tests on return on assets, operating margin, and asset turnover. Our results indicate that spin-offs create shareholder wealth at the announcement day, but not on a long-term basis absent risk-adjustment. After risk-adjustment, we find that the average post-spin-off entity underperforms the overall market in the long term. In terms of changes in operating performance after spin-offs, no statistically significant pattern is found. To the best of our knowledge, risk-adjusted stock market performance following spin-offs has not been a focus point in previous research. We thus believe that this study contributes to the existing literature within the field of spin-offs with a holistic view on the value-creating elements of spin-offs.