TITLE:
Shareholder Value Creation through Corporate Spin-Offs in Europe—An Empirical Analysis
AUTHORS:
Elmar Steurer, Ernst J. Fahling, Anna Ehleiter
KEYWORDS:
Spin-Off Europe, Shareholder Wealth, Abnormal Return Spin-Offs and Parent Companies
JOURNAL NAME:
Journal of Financial Risk Management,
Vol.12 No.1,
March
10,
2023
ABSTRACT: Through a spin-off of a business unit, the parent
company aims to have a positive impact on
its enterprise value. The parent company often pursues the spin-off
transaction to strengthen the focus on its core business, reduce negative
synergies and increase operational efficiency. Based on studies already established in the literature, it is assumed that
the spin-off transaction increases shareholder wealth. Despite the high
relevance of spin-offs as restructuring measure, empirical research in
Europe has not sufficiently addressed this issue yet. Accordingly, this paper
examines both the short-term effects of a spin-off announcement for the parent
company and the long-term effects of the implementation of the spin-off at the
level of the parent company and the spin-off company on the European capital
market. A sample of 24 European companies is examined. The time horizon of the
empirical research is from January 2015 to December 2020. For the short-term
study, five event windows were chosen around
the announcement date and for the long-term study, 3 event periods were
chosen over 3, 6 and 12 months after the spin-off transaction. The short-term
examination of parent companies yields a cumulative average abnormal return over the investigated event windows around the announcement
date of 3.40%. In the long-term research, the parent company generates a
buy-and-hold average abnormal return over the studied event periods after the
implementation of the spin-off transaction of ?4.11%. The spin-off companies generate a buy-and-hold
average abnormal return of 13.76% in the same event periods.