Do Spin-offs really Create Value? The European Case

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.