Wealth effects associated with spin-offs: Empirical evidence from the Nordics

Abstract

This study focuses on the abnormal returns associated with spin-offs in the Nordics. The sample consists of 84 completed spin-offs between 2000 and 2020. Similar to the vast majority of previous studies, a significant three-day cumulative average abnormal return around the announcement date is documented, showing abnormal returns of 3.03%. Further, focus-increasing spin-offs exhibit a 4.08% median cumulative abnormal return compared to 1.48% for non-focus-increasing, where the median difference between the two subsamples is significantly different from zero. This study is also the first to document significantly negative abnormal returns for the parent firms, in the long run, implying an underperformance of the parent after the spin-off. On the contrary, the long-run returns for the spun-off entities and the pro-forma combined firms record no significant results in any of the holding periods examined, which is in line with previous European research and the efficient market hypothesis.