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Please use this identifier to cite or link to this item:
http://hdl.handle.net/2451/27458
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| Title: | The Long-Run Performance of Sponsored and Conventional Spin-Offs |
| Authors: | Klein, April
Rosenfeld, James |
| Keywords: | Spin-offs,Sponsored Spin-offs
Conventional Spin-offs
Long-Run Performance |
| Issue Date: | 3-May-2008 |
| Series/Report no.: | April Klein-9 |
| Abstract: | Unlike a conventional spin-off, a sponsored spin-off takes place when
the subsidiary to be divested sells an equity stake to an outside
investor before going public, thereby receiving a substantial capital
infusion. We find that the stock return performance of a sample of 57
sponsored spin-offs from 1994 through 2005 is significantly negative
over a three-year period following the spin-off date. In contrast, 182
conventional spin-offs over same interval record an average return
performance. The parent firms' stock performance for the year preceding
(following) the spin-off date is below-average (average), suggesting
that their earlier performance was adversely affected by the subsidiary
and motivated the parent to spin it off. In support of this contention,
we find that parent firms tended to under-invest in the subsidiary prior
to the spin-off, due to the subsidiary's limited growth opportunities.
This under-investment, in turn, could have motivated the subsidiary to
seek outside funding sources before going public. |
| URI: | http://hdl.handle.net/2451/27458 |
| Appears in Collections: | Accounting Working Papers
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