The Impact of Spin-offs on Shareholder Value : Evidence from the Swedish Market 1991-2022

Abstract: This thesis uses an event study methodology to investigate the short- and long-term effect on shareholder value from Lex ASEA-approved spin-offs' on the Swedish market between 1991-2022. The impact of spin-offs has been examined by estimating the effects on the parent firm, the spun-off entity, and a value-weighted pro-forma entity. This study has also attempted to capture sources of any abnormal returns by testing several potential determinants. The study found positive but insignificant short-term abnormal returns for all measured entities, which contradicts the positive results of previous US and European studies. Testing for relative spin-offsize and industry focus as determinants for abnormal announcement returns indicated that smaller intra-industry spin-offs yield greater abnormal returns. The spun-off and pro-forma entities showed significant long-term abnormal returns compared to the OMXSPI index benchmark. When compared against a portfolio of matched firms, only the spun-off firms delivered significant abnormal returns, but only for one of the tested intervals. Testing for relative spin-offsize and industry focus as determinants for long-term performance found that cross-industry spin-offs yield positive long-term abnormal returns for the spin-off firm. Lastly, testing the proxies for operational performance for the parent firms show general improvements in ROA and EBITDA/TA post spin-off and inconclusive results for gross profit margin. Consequently, the short-term findings presented in this study do not exhibit any increase in shareholder value related to the announcement of spin-offs. In contrast, the long-term results show increased shareholder value for the spun-off entity and the hypothetical pro-forma combined firm.