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Can Takeover Losses Explain Spin-Off Gains?

Published online by Cambridge University Press:  06 April 2009

Jeffrey W. Allen ,
Scott L. Lummer ,
John J. McConnell  and
Debra K. Reed
Jeffrey W. Allen
Affiliation:
Cox School of Business, Southern Methodist University, Dallas, TX 75272
Scott L. Lummer
Affiliation:
Ibbotson Associates, Chicago, IL 60601
John J. McConnell
Affiliation:
Krannert Graduate School of Management, Purdue University, West Lafayette, IN 47907-1310
Debra K. Reed
Affiliation:
College of Business Administration, University of Oklahoma, Norman, OK 73019
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Abstract

This paper evaluates the conjecture that excess stock returns that have been documented around the announcement of corporate spin-offs represent, at least in part, the re-creation of value destroyed at the time of an earlier acquisition. We evaluate this question with a sample of spin-offs that originated as earlier acquisitions. At the time of the original acquisition, on average, announcement period returns to the bidder and the combined bidder and target firm are negative and significant. Additionally, announcement period returns at the time of the spin-off are negatively and significantly correlated with acquisition announcement period returns.

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , Volume 30 , Issue 4 , December 1995 , pp. 465 - 485
Copyright
Copyright © School of Business Administration, University of Washington 1995

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