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STRATEGICALLY PLANNED SPIN‐OFFS: THE EMPIRICAL EVIDENCE

Competitiveness Review

ISSN: 1059-5422

Article publication date: 1 January 1992

125

Abstract

Several academic studies have examined the investment performance of initial public offerings (IPOs). Since the underwriters desire to have the offering sell out quickly, they have an incentive to underprice the securities offering. A number of studies have found that new equity issues are generally underpriced and produce positive abnormal short‐term returns. Like IPOs, spin‐offs are issues which are new to the public capital markets. However, unlike IPOs, spin‐offs do not involve an underwriter which determines the offering price of the security. Spin‐offs are also similar to corporate sell‐offs in that a parent company makes a decision to divest a division or subsidiary; however, in a spin‐off the business unit is not sold for cash or securities. Instead, spin‐offs occur when a parent corporation distributes its entire holdings of stock in a subsidiary on a pro‐rata basis to the parent's shareholders. These transactions have the effect of completing the separation of the assets and liabilities of the parent and the subsidiary. Thus, two separate public corporations with the same proportional equity holdings now exist whereas only one firm existed previously.

Citation

Cox, R.A.K., Kleinman, R.T. and Sahu, A.P. (1992), "STRATEGICALLY PLANNED SPIN‐OFFS: THE EMPIRICAL EVIDENCE", Competitiveness Review, Vol. 2 No. 1, pp. 9-12. https://doi.org/10.1108/eb060156

Publisher

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MCB UP Ltd

Copyright © 1992, MCB UP Limited

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