Announcement wealth effects of corporate spin offs
This paper is going to analyze the announcement wealth effects for a sample of 250 spin offs, that took place in Western Europe and U.S.A., between January 2000 and December 2009. Using the event study methodology, we measure both the short-term and long-term reaction of firms announcing a spin off. The results reveal a positive and statistically significant cumulative abnormal return over a 3-day interval (-1, +1) of 6.18%. Looking at the industrial focus of spin offs, we find a cumulative abnormal return of 2.10% for the spin offs that increase their industrial focus and 4.17% for the non-focus increasing firms. Moreover, the results from the regression analysis show Return on Assets and EBITDA/Total Assets ratios are the main driving forces behind the excess returns of spin offs. Finally, we test the long-term performance of sample firms, parents and subsidiaries using financial ratios and compare this performance with a sample of matching firms.