Spin-off Performance : Does the subsidiary perform better on its own?

Abstract: Background: A spin-off is strategic instrument used to restructure an organisation and thereby maximize shareholder value. Theory and advocates argue that engaging in spin-offs will generate improved financial performance of the parent company as well as for the divested unit. Previous studies on the topic have primarily focused on the perspective of the parent com-pany and little attention has been given to the post spin-off performance of the divested unit, in particular on the Swedish market. Consequently this study will focus on the performance of divested units of spin-offs performed on the Swedish market. Purpose: The purpose of this study is to compare the financial performance of the divested unit prior versus post the spin-off event in order to find poten-tial performance alterations. Method: The study is conducted through an inductive approach based on quanti-tative data. In order to fulfil the purpose of comparing the financial per-formance, four financial ratios are used; Return on Assets, Market-to- book ratio, Sales Growth and Share Price. Statistical sign-tests are subse-quently conducted in order to find possible significant alterations in the financial performance. Results: The results of the statistical tests all show unified findings in which no statistical significant change in performance post the spin-off event can be found. However negative tendencies are found for Return on Assets and positive tendencies were found for the variables M/B ratio and Sales Growth. The fourth variable, Sales Growth does not show a tendency in any direction. Similar results were found when classifying the sample into relative size and timing of the spin-off event. Conclusion: Spin-offs on the Swedish market do not on average perform better as stand alone units. Vague positive tendencies could however be found on the variables connected to market expectations, and negative tendencies could be found for the variables measuring efficiency and profitability.