Value creation in sponsored and non-sponsored spin-offs

Abstract: I examine whether spin-offs create value and if there is a difference between sponsored and non-sponsored firms by examining announcement-day share price performance, long-term share price performance, and long-term change in operational performance. The measures used were calculated on an unadjusted basis, in line with prior research, and on a risk-adjusted basis, using the Capital Asset Pricing Model. Additionally, I analyze the results from the lens of four theories: the manager incentives theory, the information asymmetry theory, the focus and synergy theory, and the tax and regulation theory. My results indicate that spin-offs create value on the day of announcing a spin-off and destroy value in the long-term based on long-term excess returns. The changes in operating performance did not show to be statistically significant. To the best of my knowledge, the research question examined in this study is unprecedented, as no study has examined the relationship between ownership structure and spin-off value creation in the short- and long-term, including a risk-adjusted measure for excess return.