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Private Information and Spin-Off Performance

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  • Allen, Jeffrey W

Abstract

Following pro rata spin-offs, shareholders, including insiders, trade their stock holdings in public subsidiaries independently of trades in parent firms. This article examines the predictive ability of informed trading with respect to post-spin-off stock performance and corporate control transactions. I find that subsequent to spin-offs, insiders are substantial purchasers of stock in public subsidiaries and sellers in parent firms. The trades of insiders are significantly related to post-spin-off stock returns, takeovers, and delistings of spun-off firms. The results are highly significant for senior managers of public subsidiaries, but they do not generally hold for outside directors or large blockholders. Copyright 2001 by University of Chicago Press.

Suggested Citation

  • Allen, Jeffrey W, 2001. "Private Information and Spin-Off Performance," The Journal of Business, University of Chicago Press, vol. 74(2), pages 281-306, April.
    • Handle: RePEc:ucp:jnlbus:v:74:y:2001:i:2:p:281-306
    DOI: 10.1086/209673
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    Blog mentions

    As found by EconAcademics.org, the blog aggregator for Economics research:
    1. Rise of corporate divorces leads to fleeting gains
      by Peter Kien Pham, Associate Professor at UNSW Australia in The Conversation on 2014-11-19 01:23:48

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    Cited by:

    1. Donald D. Bergh & Brian L. Connelly & David J. Ketchen Jr & Lu M. Shannon, 2014. "Signalling Theory and Equilibrium in Strategic Management Research: An Assessment and a Research Agenda," Journal of Management Studies, Wiley Blackwell, vol. 51(8), pages 1334-1360, December.
    2. Agarwal, Rajshree & Echambadi, Raj & Franco, April M. & Sarkar, M. B., 2002. "Knowledge Transfer through Congenital Learning: Spin-Out Generation, Growth and Survival," Working Papers 02-0101, University of Illinois at Urbana-Champaign, College of Business.
    3. Ma, Qing & Wang, Susheng, 2018. "Divestment options under tacit and incomplete information," Pacific-Basin Finance Journal, Elsevier, vol. 49(C), pages 15-29.
    4. López Iturriaga, Félix & Marti­n Cruz, Natalia, 2008. "Antecedents of corporate spin-offs in Spain: A resource-based approach," Research Policy, Elsevier, vol. 37(6-7), pages 1047-1056, July.
    5. Dong, Gang Nathan & Gu, Ming & He, Hua, 2020. "Invisible hand and helping hand: Private placement of public equity in China," Journal of Corporate Finance, Elsevier, vol. 61(C).
    6. Chen, Sheng-Syan & Ho, Kim Wai & Huang, Chia-Wei & Wang, Yanzhi, 2013. "Buyback behavior of initial public offering firms," Journal of Banking & Finance, Elsevier, vol. 37(1), pages 32-42.
    7. Nazir Saima & Chisti Khalid, 2023. "Corporate Spin-Offs and Shareholders’ Wealth: A Systematic Review and Future Research Agenda," Acta Universitatis Sapientiae, Economics and Business, Sciendo, vol. 11(1), pages 42-63, October.
    8. Byron J. Hollowell, 2009. "The Long-Term Performance Of Parent Firms And Their Spin-Offs," The International Journal of Business and Finance Research, The Institute for Business and Finance Research, vol. 3(1), pages 119-129.
    9. Chen, Hsuan-Chi & Chou, Robin K. & Lu, Chien-Lin, 2021. "Misvaluation and the corporate propensity to hold cash," Journal of Corporate Finance, Elsevier, vol. 70(C).
    10. María Consuelo Pucheta-Martínez & Inmaculada Bel-Oms & Gustau Olcina-Sempere, 2018. "Female Institutional Directors on Boards and Firm Value," Journal of Business Ethics, Springer, vol. 152(2), pages 343-363, October.
    11. Hsuan-Chi Chen & Sheng-Syan Chen & Chia-Wei Huang & John D. Schatzberg, 2014. "Insider Trading and Firm Performance Following Open Market Share Repurchase Announcements," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 41(1-2), pages 156-184, January.

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