CORPORATE SPIN-OFFS AND SHAREHOLDERS' VALUE: EVIDENCE FROM SINGAPORE

Md Hamid Uddin

The International Journal of Business and Finance Research, 2010, vol. 4, issue 4, 43-58

Abstract: A Parent company occasionally spins off a wholly owned subsidiary or division, if it helps improve operational efficiency, reduce information asymmetry, reduce tax liability, and improve corporate governance. Therefore, it is suggested that corporate spin-offs create shareholders' value. It is also suggested that spin-off decisions may result in redistribution of wealth from debt holders to shareholders, because a part of the total assets of parent company are transferred to a newly incorporated independent company that replaces the wholly owned subsidiary or division. This study examines the value effect of 25 such corporate spin-off events that occurred in Singapore. Results show that parent shareholders gain about 15.73 percent value after spin-offs. Of which, 6.62 percent gain occurs in spin-off stocks while the remaining 9.11 percent occurs in parent stocks. The finding is consistent with the argument that corporate spin-offs have economic benefits to help increase shareholders' value. It is also found that total spin-off value gain is significantly correlated with the debt asset ratio of parent firms, which sheds light on the possibility of wealth redistribution from the bondholders to shareholders due to change in parent capital structure after spin-off.

Keywords: Spin-offs; Shareholder Value; Parent Stock; Spin-off Stock; and Divestiture. (search for similar items in EconPapers)
JEL-codes: G14 (search for similar items in EconPapers)
Date: 2010
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