Earnings Forecasts and the Information Contained in Spinoff Announcements

Ronald W Best, Roger J Best and A M Agapos

The Financial Review, 1998, vol. 33, issue 3, 53-67

Abstract: This study examines spinoff announcements in conjunction with financial analysis' forecasts of earnings. The analysis shows that spinoff announcement abnormal returns are significantly related to the firm's information environment as proxied by financial analysts' earnings prediction errors. The findings also indicate that analysts significantly increase their short-term earnings forecasts in response to spinoffs, but do not significantly revise their long-term earnings forecasts. However, the earnings revisions are not significantly different across prediction error groups, which confirms that spinoff-related abnormal returns cannot be attributed solely to expected performance gains. Copyright 1998 by MIT Press.

Date: 1998
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