The Swedish Disease - Impact of company spin-offs on firms' operational performance and equity value

Abstract: This paper sets out to examine the equity price performance as well as operational performance in both the long- and short-term for Nordic spin-offs. More specifically, the paper evaluates the performance for 110 spin-off entities, both the parent and spun-off company, between the years 1998-2017. The performance is assessed in relation to relevant stock indexes as well as a custom-built operational benchmark. The performance is first evaluated using event studies which revealed that on average there is a cumulative abnormal return of 4.5\% at the announcement date for equity price performance. The study also finds positive abnormal development over the spin-off period for operational metrics; those being Sales growth, Return on Invested Capital, Gross margin and Cash Flow from Operations over Assets. The results of the study indicate a robust positive relationship from factors such as industry focus and spin-off impact on the operational metrics and a negative impact from a recession factor. However, long-term there are no statistically significant results for the equity performance of spin-offs, but over a 4-year time period it does outperform the index.