Sustainability Perspectives of Market-Pulled and Crisis-Pushed Corporate Spin-Offs
DOI:
https://doi.org/10.33736/ijbs.4860.2022Keywords:
Pulled and pushed corporate spin-offs, wealth effects, spin-offs determinants, economic conditions, sustainability perspectivesAbstract
Are there different wealth effects for Corporate Spin-offs (CSOs) during economic crisis viz non-crisis and do their performance matter? The answer is crucial for market players investment decisions and CSOs research underpinning impact on sustainability. Reviewing predominantly three papers on Malaysian CSOs, inter-alia, other papers globally, there was an explanation gap on the magnitude, speed, significance, and sustainability of CSO wealth in terms of financial market conditions at the timing of CSOs and CSOs’ performance. After remedying event-induced volatility and cross-sectional correlations, wealth effects were analysed using ninety Malaysian CSOs from 1987 to 2019. We found Crisis-pushed CSOs during weak market conditions had dwindling short-term gains implying weak sustainability contrary to Market-pulled CSOs that demonstrated strong sustainable long-term gains. Pushed CSOs achieved adversely -0.81%, and, Positive performance CSOs have earning potential 14.12% compared to Negative performance CSOs with losing potential -16.08%. CSOs' determinants changed when subjected to market-based criteria and performance-based criteria suggested CSOs' wealth effect oblivious to market conditions and performance were not reliable for gauging CSO expectations. Performance-based criteria subsampling revealed that the composition of generalized CSOs return is not positively dominant and have equal potential to gain and risk of loss.
References
Andersson, M., & Klepper, S. (2012). Characteristics and performance of new firms and spinoffs in Sweden (Research Institute of Industrial Economics Working Paper No. 902). https://www.ifn.se/media/jokb5xhl/wp902.pdf https://doi.org/10.2139/ssrn.2002784
Boehmer, J., Musumeci, J., & Poulsen, A. (1991). Event-study methodology under conditions of event-induced variance. Journal of Financial Economics, 14(1), 3-31. https://doi.org/10.1016/0304-405X(91)90032-F
Chai, D., Lin, Z., & Veld, C. (2017). Value creation through spin-offs: Australian evidence. Australian Journal of Management, 43(3), 353-372. https://doi.org/10.1177/0312896217729728
Chemmanur, T. J., & He, S. (2016). Institutional trading, information production and corporate spin-offs. Journal of Corporate Finance, 38(C), 54-76. https://doi.org/10.1016/j.jcorpfin.2016.03.009
Chemmanur, T., Jordan, B., Liu, H., & Wu, Q. (2010). Antitakeover provisions in corporate spin-offs. Journal of Banking and Finance, 34(4), 813-824. https://doi.org/10.1016/j.jbankfin.2009.09.011
Copeland, T., Lemgruber, E., & Mayers, D. (1987). Corporate spin-offs: Multiple announcement and ex-date abnormal performance. In T. E. Copeland (Ed.), Modern finance and industrial economics (pp. 114-137). Basil Blackwell Press.
Cowan, A. (1992). Nonparametric event study tests. Review of Quantitative Finance and Accounting, 2, 343-358. https://doi.org/10.1007/BF00939016
Curran, D., Gorman, C. O., & Egeraat, C. V. (2016). "Opportunistic" spin-offs in the aftermath of an adverse corporate event. Journal of Small Business and Enterprise Development, 23(4), 984-1009. https://doi.org/10.1108/JSBED-05-2015-0058
Cusatis, P., Miles, J., & Woolridge, J. (1993). Restructuring through spin-offs. Journal of Financial Economics, 33(3), 293-311. https://doi.org/10.1016/0304-405X(93)90009-Z
Desai, H., & Jain, P. (1999). Firm performance and focus: Long-run stock market performance following spin-offs. Journal of Financial Economics, 54, 75-101. https://doi.org/10.1016/S0304-405X(99)00032-X
Feldman, E. R. (2015). Corporate spinoffs and analysts' coverage decisions: the implication for diversified firms. Strategic Management Journal, 37(7), 1196-1219. https://doi.org/10.1002/smj.2397
Feldman, E. R. (2016). Corporate spin-offs and capital allocation decision. Strategy Science, 1(4), 256-271. https://doi.org/10.1287/stsc.2016.0022
Feng, Y., Nandy, D. K., & Tian, Y. S. (2015). Executive compensation and the corporate spin-off decision. Journal of Economics and Business, 77(C), 94-117. https://doi.org/10.1016/j.jeconbus.2014.09.003
Helwege, J., & Liang, N. (2004). Initial public offerings in hot and cold markets. Journal of Financial and Quantitative Analysis, 39(3), 541-569. https://doi.org/10.1017/S0022109000004026
Hite, G., & Owers, J. (1983). Security price reaction around corporate spin-off announcements. Journal of Financial Economics, 12, 409-436. https://doi.org/10.1016/0304-405X(83)90042-9
Johnson, S., & Klein, D. (1996). The effects of spin-offs on corporate investment and performance. Journal of Financial Research, 19(2), 293-307. https://doi.org/10.1111/j.1475-6803.1996.tb00598.x
Kirchmaier, T. (2003). The performance effects of European demergers (Centre for Economic Performance Discussion Papers No. DP0566). https://cep.lse.ac.uk/pubs/download/dp0566.pdf https://doi.org/10.2139/ssrn.432000
Kolari, J., & Pynnonen, S. (2010). Event study testing with cross-sectional correlation of abnormal returns. Review of Financial Studies, 23(11), 3996-4025. https://doi.org/10.1093/rfs/hhq072
Kolari, J., & Pynnonen, S. (2011). Nonparametric rank tests for event studies. Journal of Empirical Finance, 18(5), 953-971. https://doi.org/10.1016/j.jempfin.2011.08.003
Krishnaswami, S., & Subramaniam. (1999). Information asymmetry, valuation, and the corporate spin-offs decision. Journal of Financial Economics, 53, 73-112. https://doi.org/10.1016/S0304-405X(99)00017-3
Kudla, R., & Mclnish, T. (1988). Divergence of opinion and corporate spin-offs. Quarterly Review of Economics and Business, 28(2), 20-29.
Lowry, M. (2003). Why does IPO volume fluctuate so much? Journal of Financial Economics, 67(1), 3-40. https://doi.org/10.1016/S0304-405X(02)00230-1
Mazur, M. (2015). Creating M&A opportunities through corporate spin-offs. Journal of Applied Corporate Finance, 27(3), 131-143.
McConnell, J., Ozbilgin, M., & Wahal, S. (2001). Spin-offs: Ex ante. Journal of Business, 74(2), 245-280. https://doi.org/10.1086/209672
Miles, J., & Rosenfeld, J. (1983). The effect of voluntary spin-off announcements on shareholder wealth. The Journal of Finance, 38(5), 1597-1607. https://doi.org/10.1111/j.1540-6261.1983.tb03843.x
Murray, L. (2008). Spin-offs in an environment of bank debt. Journal of Business Finance and Accounting, 35(3-4), 406-433. https://doi.org/10.1111/j.1468-5957.2008.02088.x
Nadisah, Z., & Arnold, G. (2012). Do Malaysian spin-offs create value? Asian Journal of Finance and Accounting, 4(1),151-172. https://doi.org/10.5296/ajfa.v4i1.1518
Patell, J. M. (1976). Corporate forecasts of earnings per share and stock price behaviour: Empirical test. Journal of Accounting Research, 14(2), 246-276. https://doi.org/10.2307/2490543
Penela, D., Estavao, J., & Amy, G. (2019). Accounting and financial antecedents of corporate spin-offs in the lodging industry. International Journal of Hospitality Management, 83, 151-158. https://doi.org/10.1016/j.ijhm.2019.05.007
Prezas, A. P., & Simonyan, K. (2015). Corporate divestitures: Spin-offs vs sell-offs. Journal of Corporate Finance, 34(C), 83-107. https://doi.org/10.1016/j.jcorpfin.2015.07.017
Rocha, V., Carneiro, A., & Varum, C. (2015). What explains the survival gap of pushed and pulled corporate spin-offs? Economic Letters, 126(C), 127-130. https://doi.org/10.1016/j.econlet.2014.11.029
Schipper, K., & Smith, A. (1983). Effects of recontracting on shareholder wealth: The case of voluntary spin-offs. Journal of Financial Economics, 12(4), 437-467. https://doi.org/10.1016/0304-405X(83)90043-0
Seifert, B., & Rubin, B. (1989). Spin-offs and the listing phenomena. Journal of Economics and Business, 41(1),1-19. https://doi.org/10.1016/0148-6195(89)90002-7
Seward, J., & Walsh, J. (1996). The governance and control of voluntary corporate spin-offs. Strategic Management Journal, 17(1), 25-39. https://doi.org/10.1002/(SICI)1097-0266(199601)17:1<25::AID-SMJ797>3.0.CO;2-G
Veld, C., & Merkoulova, Y. (2003). Do spin-offs really create value? The European case. Journal of Banking and Finance, 28, 1111-1135. https://doi.org/10.1016/S0378-4266(03)00045-1
Vijh, A. (1994). The spin-off and merger of ex-date effects. Journal of Finance, 19(2), 581-609. https://doi.org/10.1111/j.1540-6261.1994.tb05153.x
Wilcoxon, F. (1945). Individual comparison by ranking methods. Biometrics Bulletin, 1(6), 80-83. https://doi.org/10.2307/3001968
Yoon, C., & Ariff, M. (2007). Corporate spin-offs, their price reactions, and determinants in Malaysia. International Journal of Banking and Finance, 5(1), 83-112. https://doi.org/10.32890/ijbf2008.5.1.8360
Yoon, T., Annuar, N., & Yoon, C. (2019). Cross-sectional correlation from period based subsampling - Malaysian corporate spin-offs. International Journal of Accounting, Finance, and Business, 4(25), 1-11.
Zenner, M., Junek, E., & Chivukula, R. (2015). Shrinking to grow: Evolving trends in corporate spin-offs. Journal of Applied Corporate Finance, 27(3), 131-136. https://doi.org/10.1111/jacf.12104
Downloads
Published
How to Cite
Issue
Section
License
Copyright Transfer Statement for Journal
1) In signing this statement, the author(s) grant UNIMAS Publisher an exclusive license to publish their original research papers. The author(s) also grant UNIMAS Publisher permission to reproduce, recreate, translate, extract or summarize, and to distribute and display in any forms, formats, and media. The author(s) can reuse their papers in their future printed work without first requiring permission from UNIMAS Publisher, provided that the author(s) acknowledge and reference publication in the Journal.
2) For open access articles, the author(s) agree that their articles published under UNIMAS Publisher are distributed under the terms of the CC-BY-NC-SA (Creative Commons Attribution-Non Commercial-Share Alike 4.0 International License) which permits unrestricted use, distribution, and reproduction in any medium, for non-commercial purposes, provided the original work of the author(s) is properly cited.
3) For subscription articles, the author(s) agree that UNIMAS Publisher holds copyright, or an exclusive license to publish. Readers or users may view, download, print, and copy the content, for academic purposes, subject to the following conditions of use: (a) any reuse of materials is subject to permission from UNIMAS Publisher; (b) archived materials may only be used for academic research; (c) archived materials may not be used for commercial purposes, which include but not limited to monetary compensation by means of sale, resale, license, transfer of copyright, loan, etc.; and (d) archived materials may not be re-published in any part, either in print or online.
4) The author(s) is/are responsible to ensure his or her or their submitted work is original and does not infringe any existing copyright, trademark, patent, statutory right, or propriety right of others. Corresponding author(s) has (have) obtained permission from all co-authors prior to submission to the journal. Upon submission of the manuscript, the author(s) agree that no similar work has been or will be submitted or published elsewhere in any language. If submitted manuscript includes materials from others, the authors have obtained the permission from the copyright owners.
5) In signing this statement, the author(s) declare(s) that the researches in which they have conducted are in compliance with the current laws of the respective country and UNIMAS Journal Publication Ethics Policy. Any experimentation or research involving human or the use of animal samples must obtain approval from Human or Animal Ethics Committee in their respective institutions. The author(s) agree and understand that UNIMAS Publisher is not responsible for any compensational claims or failure caused by the author(s) in fulfilling the above-mentioned requirements. The author(s) must accept the responsibility for releasing their materials upon request by Chief Editor or UNIMAS Publisher.
6) The author(s) should have participated sufficiently in the work and ensured the appropriateness of the content of the article. The author(s) should also agree that he or she has no commercial attachments (e.g. patent or license arrangement, equity interest, consultancies, etc.) that might pose any conflict of interest with the submitted manuscript. The author(s) also agree to make any relevant materials and data available upon request by the editor or UNIMAS Publisher.
