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Spin-Offs, Ex Ante

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  • McConnell, John J
  • Ozbilgin, Mehmet
  • Wahal, Sunil

Abstract

Cusatis, Miles, and Woolridge (1993) report large positive excess returns following spin-offs over the period 1965-88. We investigate whether a trading strategy based on this ex post analysis would have earned excess returns on an ex ante basis over the period 1989-95. When compared with the matched firm benchmark used by Cusatis et al. and the Fama and French (1993) 3-factor model, the strategy does not beat the benchmark. When compared with size- and book-to-market-matched portfolios, the strategy typically beats the benchmark. On an ex ante basis, post-spin-off returns provide a shaky basis for rejecting the efficient market hypothesis. Copyright 2001 by University of Chicago Press.

Suggested Citation

  • McConnell, John J & Ozbilgin, Mehmet & Wahal, Sunil, 2001. "Spin-Offs, Ex Ante," The Journal of Business, University of Chicago Press, vol. 74(2), pages 245-280, April.
    • Handle: RePEc:ucp:jnlbus:v:74:y:2001:i:2:p:245-80
    DOI: 10.1086/209672
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    Cited by:

    1. Ma, Qing & Wang, Susheng, 2018. "Divestment options under tacit and incomplete information," Pacific-Basin Finance Journal, Elsevier, vol. 49(C), pages 15-29.
    2. Chan, Konan & Ikenberry, David L. & Lee, Inmoo, 2007. "Do managers time the market? Evidence from open-market share repurchases," Journal of Banking & Finance, Elsevier, vol. 31(9), pages 2673-2694, September.
    3. Daniel Chai & Ziyang Lin & Chris Veld, 2018. "Value-creation through spin-offs: Australian evidence," Australian Journal of Management, Australian School of Business, vol. 43(3), pages 353-372, August.
    4. Prezas, Alexandros P. & Simonyan, Karen, 2015. "Corporate divestitures: Spin-offs vs. sell-offs," Journal of Corporate Finance, Elsevier, vol. 34(C), pages 83-107.
    5. Jan Hanousek & Evžen Kočenda & Jan Svejnar, 2009. "Divestitures, privatization and corporate performance in emerging markets," The Economics of Transition, The European Bank for Reconstruction and Development, vol. 17(1), pages 43-73, January.
    6. Dmitri Boreiko & Maurizio Murgia, 2013. "European spin-offs Origin, value creation, and long-term performance," BEMPS - Bozen Economics & Management Paper Series BEMPS05, Faculty of Economics and Management at the Free University of Bozen.
    7. Veld, Chris & Veld-Merkoulova, Yulia V., 2004. "Do spin-offs really create value? The European case," Journal of Banking & Finance, Elsevier, vol. 28(5), pages 1111-1135, May.
    8. Jan Hanousek & Evzen Kocenda & Jan Svejnar, 2004. "Spinoffs, Privatization and Corporate Performance in Emerging Markets," Microeconomics 0406003, University Library of Munich, Germany.
    9. Debarshi Nandy & Thomas Chemmanur, 2005. "How is Value Created in Spin-Offs? A Look Inside the Black Box," Working Papers 05-09, Center for Economic Studies, U.S. Census Bureau.
    10. Chemmanur, Thomas J. & Krishnan, Karthik & Nandy, Debarshi K., 2014. "The effects of corporate spin-offs on productivity," Journal of Corporate Finance, Elsevier, vol. 27(C), pages 72-98.
    11. Jan Hanousek & Evžen Kočenda & Jan Švejnar, 2006. "Rozdělení, privatizace podniků a jejich výkonnost [Breakups, privatization and firms" performance]," Politická ekonomie, Prague University of Economics and Business, vol. 2006(4), pages 467-489.
    12. Ronald Bremer & Bonnie Buchanan & Philip English, 2011. "The advantages of using quarterly returns for long-term event studies," Review of Quantitative Finance and Accounting, Springer, vol. 36(4), pages 491-516, May.

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