Spinoffs and Information

Habib, Michel A.; Johnsen, D. Bruce; Naik, Narayan Y.

doi:10.1006/jfin.1997.0212

Cited by 126 publications

(72 citation statements)

References 37 publications

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“…Krishnaswami and Subramaniam (1999) find that firms with higher levels of information asymmetry exhibit higher abnormal returns adjusted for the probability of a spin-off upon the announcements of spin-offs. Habib et al (1997) also present an information-based explanation for spin-offs. They derive a model in which a firm can increase its value by spinning off a subsidiary.…”

Section: Improvement Of Industrial Focusmentioning

confidence: 98%

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Do Spin-offs Really Create Value? The European Case

Veld

Veld‐Merkoulova

2002

SSRN Journal

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Abstract:We study wealth effects for a sample of 156 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 2.62%. This number increases to 2.66% for the subsequently completed spin-offs. The cumulative average abnormal return is 3.57% for completed spin-offs by companies that increase their industrial focus and only 0.76% for non-focus increasing companies. The difference between these two sub-samples is significantly different from zero. These results are in line with previous studies for the United States. The long-run returns in excess of matching firms are mostly insignificant for 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 superior performance.

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Section: Improvement Of Industrial Focusmentioning

confidence: 98%

“…The Habib et al (1997) paper leads to the hypothesis that firms, which show a decrease in information asymmetry after the spin-off, are associated with positive long-run excess returns.…”

Section: Information Asymmetrymentioning

confidence: 99%

Do Spin-offs Really Create Value? The European Case

Veld

Veld‐Merkoulova

2002

SSRN Journal

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“…Finally, combining diverse operations creates information aggregation problems that can result in substantial information asymmetries within the firm (Habib et al, 1997), or between firm insiders and outside investors by suppressing the activities of information intermediaries (Gilson et al, 2001). While diversified firms in the U.S. must disclose segment data, this information can suffer from problems associated with segment identification, cost allocations, and transfer pricing schemes (e.g., Givoly et al, 1999).…”

Section: Measures Of Organizational Complexitymentioning

confidence: 99%

Financial accounting information, organizational complexity and corporate governance systems

Bushman

Chen

Engel

et al. 2004

Journal of Accounting and Economics

848

512

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“…Miles and Rosenfeld (1983) and Allen, Lummer, McConnell, and Reed (1995) argue that such positive excess returns can be partially explained by the value destroyed at the time of an earlier acquisition. Other justifications that are usually advanced are a return to industry focus (John and Ofek (1995), Daley, Mehrotra, and Sivakumar (1997)), reduced information asymmetry (Habib, Johnsen, and Naik (1997), Krishnaswami and Subramaniam (1999), Martin and Sayrak (2003)) or tax and regulatory considerations (Schipper and Smith (1983) and Copeland and Mayers (1987)). Across these studies, the results tend to be stronger for larger deals (Klein (1986)) and deals that ultimately get consummated.…”

Section: Literature Reviewmentioning

confidence: 99%

Are Corporate Spin-Offs Prone to Insider Trading?

Augustin

Brenner

et al. 2015

SSRN Journal

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Recent research has documented empirical evidence of informed trading ahead of major corporate events such as earnings announcements, mergers and acquisitions (M&A) and corporate bankruptcies. Surprisingly, however, no such evidence exists ahead of corporate divestiture or spinoff (SP) announcements. This is noteworthy because the parent company's stock usually experiences a price jump at the time of the deal announcement, similar to the M&A target, which suggests that there exist economic gains from trading on private information. We first present evidence of average abnormal stock announcement returns of approximately 2%, with greater abnormal returns for cross-industry spinoffs, deals that reflect a greater fraction of a parent's market capitalization, and if the subsidiary is incorporated in the same state. We then investigate informed trading activity in stocks and equity options prior to the announcement of corporate SPs for a sample of 426 US parents over the time period January 1996 to December 2013. For the parent companies, we document pervasive directional activity in options, but not in stocks, consistent with strategies that could yield very high abnormal returns to investors with private information. This is evidenced by positive abnormal trading volumes and excess implied volatility for options prior to SP announcements. However, strikingly, there is no evidence of abnormal volumes or returns for stocks. The effects are stronger for call options than for put options, in particular for out-of-the-money (OTM) and at-the-money (ATM) options. High frequency data confirms the presence of unusual net buying activity in the options market, but not the stock market. We also find that abnormal options volume is the only measure of informed trading that positively and robustly predicts abnormal announcement returns. We also examine informed trading in the fixed income market using bond and CDS data, but find no such evidence. All our results are robust to a propensity-matched control sample based on the probability of being divested.

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Spinoffs and Information

Cited by 126 publications

References 37 publications

Do Spin-offs Really Create Value? The European Case

Do Spin-offs Really Create Value? The European Case

Financial accounting information, organizational complexity and corporate governance systems

Are Corporate Spin-Offs Prone to Insider Trading?

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