Do Spin-offs really Create Value? The European Case

C.H. Veld, Y.V. Merkoulova

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Abstract

We study wealth effects for a sample of 161 spin-offs from 15 different European countries that were announced between January 1987 and September 2000. The cumulative average abnormal return over the three-day event window is 2.35%. The mean abnormal return is 2.89% for companies that increase their industrial focus and only 1.20% for non-focus increasing companies.These results are in line with previous studies for the United States.The long-run returns in excess of the market return are significantly negative for both parent and pro-forma combined firms.However, if we control for the size and book-to-market effects by creating a matching portfolio, we find mostly insignificant long-run excess returns both for focus-increasing and non-focus increasing parents, subsidiaries and pro-forma combined firms.This result suggests that, unlike U.S. spin-offs, European spin-offs are not associated with long-run outperformance.
Original languageEnglish
Place of PublicationTilburg
PublisherFinance
Number of pages42
Volume2001-76
Publication statusPublished - 2001

Publication series

NameCentER Discussion Paper
Volume2001-76

Fingerprint

Spin-offs
Abnormal returns
Wealth effect
Market returns
Subsidiaries
Book-to-market effect
Long-run returns
Excess returns
European countries

Keywords

  • return on investment
  • spin-offs

Cite this

Veld, C. H., & Merkoulova, Y. V. (2001). Do Spin-offs really Create Value? The European Case. (CentER Discussion Paper; Vol. 2001-76). Tilburg: Finance.
Veld, C.H. ; Merkoulova, Y.V. / Do Spin-offs really Create Value? The European Case. Tilburg : Finance, 2001. (CentER Discussion Paper).
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Veld, CH & Merkoulova, YV 2001 'Do Spin-offs really Create Value? The European Case' CentER Discussion Paper, vol. 2001-76, Finance, Tilburg.

Do Spin-offs really Create Value? The European Case. / Veld, C.H.; Merkoulova, Y.V.

Tilburg : Finance, 2001. (CentER Discussion Paper; Vol. 2001-76).

Research output: Working paperDiscussion paperOther research output

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AB - We study wealth effects for a sample of 161 spin-offs from 15 different European countries that were announced between January 1987 and September 2000. The cumulative average abnormal return over the three-day event window is 2.35%. The mean abnormal return is 2.89% for companies that increase their industrial focus and only 1.20% for non-focus increasing companies.These results are in line with previous studies for the United States.The long-run returns in excess of the market return are significantly negative for both parent and pro-forma combined firms.However, if we control for the size and book-to-market effects by creating a matching portfolio, we find mostly insignificant long-run excess returns both for focus-increasing and non-focus increasing parents, subsidiaries and pro-forma combined firms.This result suggests that, unlike U.S. spin-offs, European spin-offs are not associated with long-run outperformance.

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Veld CH, Merkoulova YV. Do Spin-offs really Create Value? The European Case. Tilburg: Finance. 2001. (CentER Discussion Paper).