The impact of corporate spin-offs on shareholders’ wealth: Empirical evidence from India

Abstract

Corporate restructuring is a widely adopted mode of improving efficiency and firm performance and has been studied in different country contexts such as the US, Australia, and Europe. The aim of this paper is to examine the impact of spin-off announcements on the stock prices of parent firms in the Indian context. In addition, we also investigate the price effect anomaly through two subsamples of high-price scripts and low-price scripts. The study is conducted on a sample of 221 Indian firms listed in BSE (Bombay Stock Exchange) from 2003 to 2020 which have announced the spin-offs. We employ event study methodology and find that spin-offs have a significantly positive impact on the stock prices of the parent firm. We observe the highest abnormal return of 1.35% on +1 day post the event. The interval-wise analysis gives the highest CAAR of 2.64% in (+1, +5) interval. The analysis of the price behavior of stocks at different price levels suggests that the low-price script outperformed the high-price script in each event window with a CAAR of 3.90% in high-price script and 7.16% in low-price script for the event window from −10 to +10.