Spin-offs and Shareholder Value Creation: Factors Affecting the Returns Associated with Spin-off Announcements

Sammanfattning: We examine the effect of announcements of spin-offs on shareholder value. Using a sample of 153 spin-offs announced in the United States between 2007 and 2017 inclusive, we find that spin-offs on average are associated with a cumulative abnormal return over a three-day event window surrounding the announcement date of 4,20 %. This result is significant on the 1 % level. We further examine several factors that affect the size of the value creation associated with a spin-off. We find that spin-off announcements by firms in decline, in the sense that they are subject to long-term underperformance relative the market, are associated with larger value creation. We regress cumulative abnormal returns over the three-day event window on several spin-off characteristics. This yields the result that spin-offs announced by firms in decline on average are associated with cumulative abnormal returns 2,57 percentage points higher than those of otherwise comparable firms, over the event window. The result is significant on the 9 % level. This supports our hypothesis that underperforming firms are under more pressure and scrutiny from shareholders and hence have stronger incentives to conduct spin-offs that creates more shareholder value.