Second, relatedness matters in the choice of transaction. Chemmanur and Paeglis (2001) found that carve-outs and spin-offs tend to involve business units that are less related to the core than do tracking stocks. McNeil and Moore (2001) reported that announcement returns are larger at the spin-off of unrelated businesses than related businesses.
Third, the findings are consistent with benefits of increased focus. Hite and Owers (1983), Schipper and Smith (1983), Daley, Mehrotra, and Sivakumjar (1997), and Desai and Jain (1998) argue that spin-offs resolve “information asymmetry” problems—these arise from the complexity of multidivisional firms and the lack of transparency for investors to monitor the managers. Krisnaswami and Subramaniam (1999) find that firms undertaking spin-offs have higher levels of information asymmetry and that these problems decrease after the spin-offs. Best, Best, and Agapos (1998) find that securities analysts significantly increase their short-term earnings forecasts after spin-offs. Daley, Mehrotra, and Sivakumar (1997) find significant value creation around cross-industry spin-offs (rather than same-industry spin-offs). Vijh (2000) reports higher carve-out returns when the subsidiary is in a different two-digit SIC code from the parent. Veld and Veld-Merkoulova (2002) report significantly higher returns at spin-offs that are focus-increasing.
EXHIBIT 6.17 Summary of Studies of Market Returns to Parent and Subsidiary Shareholders at Spin-Offs
| Panel A: Returns to Shareholders of Parent | ||||
|---|---|---|---|---|
| Study | Cumulative Abnormal Returns at the Event | Cumulative Abnormal Returns after the Event | Sample Size | Sample Periods |
| Davis, Leblond (2002) | +2.92%* full sample +2.14%* industrial +3.87%* high tech (days –1,0) | 93 | 1980–1999 | |
| Veld, Veld-Meruklova (2002) | +2.66%* full sample +2.41% U.K. subsample +3.57% focus-increasing +0.76% not focus-increasing (days –1,+1) | –0.41% full sample +5.20% focus-increasing –12.96%* not focus-increasing (months 0,+36) | 200 | 1987–2000 |
| Chemmanur, Paeglis (2001) | +2.11%†(days –1,+1) | 19 | 1984–1998 | |
| McNeil, Moore (2001) | + 3.53%* full sample +4.05%* unrelated +2.39%‡ related (days –1,+1) | 152 104 48 | 1980–1996 | |
| Desai, Jain (1999) | + 3.8% | +25.4% (3 yrs.) | 155 | 1975–1991 |
| Krishnaswami, Subramaniam (1999) | +3.28%* full sample (days –1,+1) | 118 | 1979–1993 | |
| Arbanell, Bushee, Raede (1998) | + 3.23% return to parents –0.86% return to spin-off (days –1,+60) | 245 | 1980–1996 | |
| Best, Best, Agapos (1998) | +3.41%*announcement date +2.9g4%* ex-date (day 0) | 72 63 | 1979–1993 | |
| Daley, Mehrotra, Sivakumar (1997) | +3.4%* full sample +4.3%* focus-increasing +1.4% not focus-increasing | 85 | 1975–1991 | |
| Parrino (1997) Clinical study of one spin-off by Marriott Corporation | +13.19% announcement date +41.12% five event dates | 1 | 1993 | |
| Johnson, Klein, Thibodeaux (1996) | +3.96%* full sample +5.42%* “back to basic” subsample | N/A | 104 | 1975–1988 |
| Slovin, Sushka, Ferraro (1995) | +1.3% | N/A | 37 | 1980–1991 |
| Cusatis, Miles, Woolridge (1993) | N/A | +12.5%‡ (1 yr.) +26.7%‡ (2 yrs.) +18.1% (3 yrs.) | 146 | 1965–1988 |
| Vijh (1994) | +2.9%‡ annct. date +0.79% completion date +3.03%‡ ex-date | 113 | 1964–1990 | |
| Rosenfeld (1984) | +5.56%* full sample | 35 | 1963–1981 | |
| Schipper, Smith (1983) | +2.8% | N/A | 93 | 1963–1981 |