Equity Performance of Spinoffs

Open Access
Author:
Long, Michael Paul
Area of Honors:
Finance
Degree:
Bachelor of Science
Document Type:
Thesis
Thesis Supervisors:
  • Dr J Randall Woolridge, Thesis Supervisor
  • James Alan Miles, Honors Advisor
Keywords:
  • Spinoffs
  • performance
  • sales
  • EBIT
Abstract:
Corporate spinoffs have become popular for corporations over the past two decades, and the performance of those spinoffs has been subject to much research as well. This paper looks at 36 spinoffs between 2004 and 2009 and tracks the performance of those companies relative to a competitor for -6, -12, -24 and -36 month time periods beginning on the first day of trading for the spinoff. It also looks at the growth rate of both sales and EBIT for three years after the spinoff for both the spun-off company and the competitor. The results suggest the equity performance of spinoffs is superior to their competitors over all time frames; however, the growth rate of sales and EBIT are greater over all time frames (year 0 to 1, 1 to 2, and 2 to 3) for their competitors. Given this information, it is difficult to determine the exact reason for the superior performance of the spinoffs, but it does indicate they are better investment for investors.