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Reexamining information asymmetry related to corporate spin-offs

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  • Chen, Han-Sheng
  • Lin, Ying-Chou
  • Lin, Yu-Chen

Abstract

Recent technological innovations and changes in governmental regulations both affect information dissemination; within this context, we use this paper to reassess the role of information asymmetry in corporate spin-off decisions. Analyzing spin-off deals from 1980 to 2017, we find that information asymmetry does not significantly influence spin-off decisions. Specifically, there is neither substantial disparity in levels of information asymmetry between spin-off firms and their counterparts, nor marked improvements after breakups. This remains true even when we account for events such as the Regulation Fair Disclosure (Reg FD) and the types of spin-offs themselves. Additionally, no evidence exists to suggest that firms with greater information asymmetry are more inclined to spin off. Contrary to findings in the literature, information asymmetry does not explain observed positive abnormal returns around spin-off announcements; instead, the misvaluation of spin-off firms correlates more closely with their pre-spin-off investment efficiency. These findings suggest a shift in primary drivers behind corporate spin-offs: a diminished focus on information asymmetry and stronger attention instead to investment inefficiencies and misvaluation in response to evolving market conditions.

Suggested Citation

  • Chen, Han-Sheng & Lin, Ying-Chou & Lin, Yu-Chen, 2024. "Reexamining information asymmetry related to corporate spin-offs," The Quarterly Review of Economics and Finance, Elsevier, vol. 94(C), pages 190-205.
    • Handle: RePEc:eee:quaeco:v:94:y:2024:i:c:p:190-205
    DOI: 10.1016/j.qref.2024.01.011
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    More about this item

    Keywords

    Information asymmetry; Corporate spin-off; Misvaluation;
    All these keywords.

    JEL classification:

    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance

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