eThesis - Kauppakorkeakoulun sähköiset gradut

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ABSTRACT

Purpose of the study

In this Thesis I evaluate the value creation from corporate divestitures by studying European spin-offs over the period 1994-2006. I check the abnormal returns to parent shareholders following a spin-off announcement, and try to explain these returns by regressing them against relative size of the spin-off, increase in industry and geographical focus and change in operating performance. I also measure the long-run abnormal returns for the parent and the spun off subsidiary over five years around the announcement and the industry adjusted change in operating performance following a completed spin-off. The role of these tests is to facilitate the analysis regarding the sources behind the value creation.

Data

The data used in this study was collected from several sources. The spin-off events and company details were taken from SDC Platinum, financial statement information from Thomson OneBanker Worldscope database and the stock price information from Datastream. All this data was collected for the parents, spun-off subsidiaries and benchmarks. The final sample for testing the announcement effects consisted of 164 European spin-offs of which 120 were completed. The samples for testing long-run abnormal returns and changes in operating performance became smaller as data was not available for all observations.

Results

I find positive and statistically significant cumulative abnormal returns of +1.83% to the shareholders of the parent companies over (-1,1) days around the spin-off announcement. This value increases to 1.92% when only the sample of completed spin-offs is evaluated and further to 2.38% in the sample of only focus increasing spin-offs. This value creation is significantly related to the relative size of the spin-off. Increase in industrial focus, increase in geographical focus and change in operating performance show no significant explanation power. I also find insignificant long run abnormal returns for each subperiod in the four-year period around the spin-off announcement. Similarly, the change in operating performance, measured as the change in industry-adjusted return on assets, is not significantly different from zero over a five-year period around the spin-off announcement.