Do spin-offs really create value? Evidence from India

Abstract

There is a common perspective in the academic and popular literature that spin-offs tend to create value for shareholders (e.g., Cusatis, Miles, & Woolridge, 1993; Desai & Jain, 1999; Sin & Ariff, 2006; Sudarsanam & Qian, 2007; Veld & Veld-Merkoulova, 2009; Khedekar, 2013). This view is based on evidence from a number of studies using data from the USA and indicating that, on average, the announcement of a spin-off is associated with positive abnormal stock returns. Moreover, based on evidence from studies done on US firms (e.g., Cusatis et al., 1993; Desai & Jain, 1999; McConnell, Ozbilgin, & Wahal, 2001) shares of firms completing spin-offs appear to exhibit excess returns over periods of up to three years following the restructure. However, studies using European data have not indicated the presence of significant abnormal stock returns following spin-offs.