Firms undertaking spinoffs, on average, earn positive abnormal returns at the time of announcement and over one to three years following spinoffs. This thesis examines whether an increase in focus is an explanation for the stock market gains associated with spinoffs. For a sample of 155 spinoffs between the years 1975 and 1991, we find that the announcement period as well the long-run abnormal returns for the focus-increasing sample are significantly larger than the abnormal returns for the non-focus-increasing sample. The long-run abnormal performance of the non-focus increasing firms is actually negative. The results are robust to using alternative benchmark portfolios to compute abnormal returns, removal of firms that were taken over following spinoffs, and a separate examination of the parents and the subsidiaries. We conclude that focus-increasing spinoffs are associated with a superior stock market performance while non-focus-increasing spinoffs are not This thesis also tests the improved efficiency hypothesis by examining the change in operating efficiency following spinoffs and whether an increase in focus is an explanation for the improved operating efficiency following spinoffs. Using a sample of 75 industrial spinoffs completed between 1977 and 1991, we find a significant improvement in the operating performance of the pro-forma combined firm following the spinoff. There is a positive and significant relationship between the announcement period abnormal returns and the change in operating performance following spinoffs indicating that expectations of improved efficiency underlie the market's positive reaction to the announcement of spinoffs. A separate examination of the parents and the subsidiaries following spinoffs reveals that the parents exhibit a superior industry adjusted performance following spinoffs, while the performance of the subsidiaries is similar to their industry matching firms The focus-increasing firms show superior industry-adjusted operating performance following spinoffs, a finding consistent with the stock market performance of the focus-increasing firms documented in this thesis. The same is true when the parents are analyzed separately. However, unlike the negative industry adjusted stock market performance documented for the full sample, we do not find negative industry adjusted operating performance for the non-focus-increasing parents, subsidiaries or the pro-forma combined firm. We believe that this inconsistency can be attributed to the survivorship bias induced in the industrial sample due to our reliance on Compustat and due to possible disappearance of poorly performing firms before reporting one full year of accounting results in the year after the spinoff / acase@tulane.edu
| Identifer | oai:union.ndltd.org:TULANE/oai:http://digitallibrary.tulane.edu/:tulane_27295 |
| Date | January 1997 |
| Contributors | Desai, Hemang A (Author), Jain, Prem C (Thesis advisor) |
| Publisher | Tulane University |
| Source Sets | Tulane University |
| Language | English |
| Detected Language | English |
| Rights | Access requires a license to the Dissertations and Theses (ProQuest) database., Copyright is in accordance with U.S. Copyright law |
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