Shareholder Value Creation Through Corporate Spin-offs

Helena Grane & John Persson

Student thesis: Master thesis


This study empirically analyzes the wealth effects associated with European corporate spin-offs completed between 1988 and 2017. We detect a significant positive stock price reaction at the announcement of the spin-off, corresponding to a cumulative average abnormal return of 3.3% for shareholders. Relative spin-off size and a wealth transfer from bondholders partly explain these gains. The bondholder abnormal return upon spin-off announcement is significant at -0.4%. Furthermore, we present evidence of bondholders’ loss being more severe the larger the shareholders’ gain. When investigating the spin-off subsidiaries’ long-term performance, we find significant outperformance validated by two different methods for all investigated holding periods. Assessing against the Fama–French Three-Factor model, we find the largest abnormal returns for a 12- month holding period to be 17.6%. The spin-off subsidiary returns in excess of a matching industry portfolio peak at a 24-month holding period, corresponding to 15.8%. Extending our analysis to value creating factors, we find contradicting evidence to what is suggested in previous research. Firms that display low levels of information asymmetry prior to the spin-off create long-term abnormal returns for shareholders. This proved to be the only factor to explain any value creation in the long-term. Next to a significant positive subsidiary outperformance, we find that parent firms display slightly negative, but insignificant, long-term outperformance. As a result, the pro-forma combined firms display generally positive but insignificant long-term outperformance. This suggests that the passive shareholder is unaffected, or at least not hurt, by spin-off activity.

EducationsMSc in Finance and Investments, (Graduate Programme) Final Thesis
Publication date2018
Number of pages96