Stock market responses to corporate unbundling in South Africa

Abstract

This paper examines the effect of the announcement of a restructuring on the returns of the parent companies and the subsidiaries to be unbundled. Abnormal returns are calculated from sixty days prior to the unbundling announcement to sixty days after the announcement. Positive average abnormal returns are obtained for the parent company, while a cumulative abnormal negative price reaction of eighteen per cent is observed for the subsidiaries. This evidence is contrary to share price reactions in the United States, where abnormal positive returns were observed.

Possible explanations are considered from both the corporate and capital market perspective. From the corporate viewpoint, it is argued that an unbundling represents a movement away from “efficient” structures and that the motives for unbundling were not market related. From the capital market viewpoint, it is argued that South African markets may not be sufficiently sophisticated for unbundling to be a wealth enhancing exercise.

Key words:

• Restructuring
• abnormal returns
• organisation theory
• capital markets