The impact of corporate spin-offs on shareholders’ wealth: Empirical evidence from India

Figures & data

Table 1. Summarises the empirical evidence and their findings and conclusion from different country contexts

Authors	Restructuring mode	Period	Sample	Findings and conclusions
Aggarwal and Garg,2019	Spin-offs	2010–2016	76 (India)	Spin-offs significantly impact the share prices of the parent firms.(II)The pre-announcement period is affected more than post announcement in terms of share prices.
Chai et al., 2018	Spin-offs	1999–2013	103 (Australia)	(I)Substantial spin-off announcement effect reported over a 3-day window.(II)The potential factors examined such as industry, information asymmetry, bank debt, industry sector, and market states did not provide sufficient explanation for the spin-off announcement effect in Australia.
Bendre & Apte, 2017	Spin-offs	2012–2017	24 (India)	Significant positive return observed
Kambla, 2017	Spin-offs	2000–2012	135 (India)	Positive long-term wealth effect observed. (II)The study concludes that differences in corporate governance systems of different countries do not influence market reaction due to spin-off announcements.
Boreiko & Murgia, 2016	Spin-offs	1989–2005	92(Europe)	The long-run returns and improved operating performance are reported only by internally grown business units and parent-related-non-focusing subsidiaries (II)The post-spin-off mergers of either parents or subsidiaries improve the long-term performance and efficiency.
Vyas et al., 2015	Spin-offs	2012–2014	51(India)	Demerger announcements reported a positive effect on shareholder wealth. (II)The sample divided into large and small demergers based on market capitalisation did not show a similar result. Small demergers showed significant abnormal returns, whereas large demergers showed abnormal returns, but the result was not statistically significant.
(Bergh et al., 2008)	Spin-offs and Sell-offs	1990–1997	82(spin-offs)and 122(sell-offs)-US	The market showed a positive reaction to the restructuring announcement. (II)The stock market reaction was related to the firm’s diversification strategy mediated by the way restructuring is implemented.(III)Spin-offs mitigated the negative synergies but did not generate significant financial proceeds.
Sin and Ariff (2006)	Spin-offs	1986–2002	85 (Malaysia)	The empirical result reported the positive price effects on stock prices. (II)The parent firms experienced positive abnormal returns for two days prior to and after the annou.ncement day, while the spin-off companies experienced comparable effects after the listing date.
Ahn and Denis (2004)	Spin-offs	1981–1996	106 (U.S.)	The diversified firms allocate investment funds inefficiently. Spin-offs create value by improving investment efficiency.
Desai and Jain (1999)	Spin-offs	1975–1991	144 (U.S.)	Focus-increasing spin-offs show a more significant short-term and long-term price effect than non-focus-increasing spin-offs.(II). The observed change in operating performance was consistent with the short-term price effect and positively linked with change in focus.(III). An analysis shows that firms are expected to commence non-focus spin-offs to divest underperforming affiliate firms from the parents.
Vijh (1994)	Spin-offs	1964–1990	113 (US.)	An average return of 3.0 percent was observed. (II)The investors defer to invest in combined stocks to escape the cost of a less preferred portion of the parent firm.(III). The post-spin-off return arises as investors preferred to invest in the parent and subsidiary stocks separately.
Cusatis et al. (1993)	Spin-offs	1965–1988	146 (US.)	Significant positive abnormal returns on the announcement of the parent firm’s spin-offs.(II) Spin-offs allow parent firms to transfer the control of corporate assets on a low-cost basis to bidders to create more value for shareholders.
Hite & Owers, 1983	Spin-offs	1963–1981	123 (US)	The result over 51 days window indicates that spin-off firms performed well in the stock market.(II)It was evident from the result that stock price showed a positive reaction, and there was significant wealth gain by the shareholders.

Table 2. Year wise observations of parent firms which have announced spin-offs by their board

Year	Number of observations	Year wise percentage
2003	13	5.60
2004	2	0.86
2005	11	4.74
2006	15	6.47
2007	19	8.19
2008	6	2.59
2009	13	5.60
2010	22	9.48
2011	13	5.60
2012	12	5.17
2013	12	5.17
2014	15	6.47
2015	14	6.03
2016	18	7.76
2017	21	9.05
2018	15	6.47
2019	8	3.45
2020	3	1.29
Total	232	100.00

Table 3. AAR and CAAR results of each day during event window: announcement of spin off

Day	AAR	CAAR	t-stats	p-value	Day	AAR	CAAR	t-stats	p-value
−20	−0.00237	−0.00237	−1.01	0.24	1	0.013508	0.033764	5.74	0.00
−19	−0.00324	−0.00561	−1.38	0.15	2	0.003985	0.037748	1.69	0.10
−18	−0.00039	−0.00600	−0.17	0.39	3	0.005214	0.042962	2.22	0.03
−17	0.00417	−0.00183	1.77	0.08	4	0.004601	0.047563	1.96	0.06
−16	0.00039	−0.00144	0.17	0.39	5	−0.000825	0.046738	−0.35	0.38
−15	0.00130	−0.00014	0.55	0.34	6	−0.002191	0.044547	−0.93	0.26
−14	0.00176	0.00162	0.75	0.30	7	−0.000776	0.043771	−0.33	0.38
−13	0.00326	0.00488	1.38	0.15	8	−0.000375	0.043396	−0.16	0.39
−12	0.00139	0.00626	0.59	0.34	9	0.002601	0.045997	1.11	0.22
−11	0.00271	0.00897	1.15	0.21	10	−0.000295	0.045702	−0.13	0.40
−10	−0.00128	0.00769	−0.54	0.34	11	−0.000599	0.045103	−0.25	0.39
−9	−0.00155	0.00614	−0.66	0.32	12	−0.002404	0.042699	−1.02	0.24
−8	−0.00012	0.00603	−0.05	0.40	13	0.001349	0.044049	0.57	0.34
−7	−0.00003	0.00600	−0.01	0.40	14	0.001117	0.045166	0.47	0.36
−6	−0.00246	0.00354	−1.05	0.23	15	−0.002474	0.042691	−1.05	0.23
−5	0.00291	0.00645	1.24	0.19	16	−0.000897	0.041794	−0.38	0.37
−4	0.00005	0.00651	0.02	0.40	17	0.001469	0.043263	0.62	0.33
−3	0.00307	0.00957	1.30	0.17	18	0.000077	0.043340	0.03	0.40
−2	0.00382	0.01339	1.62	0.11	19	0.000227	0.043567	0.10	0.40
−1	−0.00013	0.01326	−0.05	0.40	20	0.002317	0.045884	0.98	0.25
0	0.00699	0.02026	2.97	0.00

The table shows the average abnormal returns (AAR) and cumulative average abnormal returns (CAAR) of each day during event window around the announcement of spin-offs, reflecting the short-term price effect on the spin-off announcement. N stands for the sample size, t-stat is the t-statistic for significance. The standardised cross-sectional t-test is used for the parametric t-test.

Table 4. AAR and CAAR results over different intervals during event window: announcement of spin off

Intervals	N	AAR	t-stats	p-value	CAAR	t-stats	p-value
(−20, −15)	221	−0.00002	−0.01	0.40	−0.00014	−0.02	0.40
(−15, −10)	221	0.00152	0.65	0.32	0.00913	1.58	0.11
(−10, −5)	221	−0.00042	−0.18	0.39	−0.00252	−0.44	0.36
(−5, −1)	221	0.00194	0.83	0.28	0.00972	1.85	0.07
(−3, −1)	221	0.00225	0.96	0.25	0.00676	1.66	0.10
(−1,0)	221	0.00343	1.46	0.14	0.00687	2.06	0.05
(−1, +1)	221	0.00679	2.89	0.01	0.02037	5	0.00
(0, +1)	221	0.01025	4.36	0.00	0.0205	6.16	0.00
(+1,3)	221	0.00757	3.22	0.00	0.02271	5.57	0.00
(+1, +5)	221	0.0053	2.25	0.03	0.02648	5.03	0.00
(+5, +10)	221	−0.00031	−0.13	0.40	−0.00186	−0.32	0.38
(+10, +15)	221	−0.00055	−0.23	0.39	−0.00331	−0.57	0.34
(+15, −20)	221	0.00012	0.05	0.40	0.00072	0.12	0.40

Figure 1. Day-wise AAR and CAAR results during event window of 41 days: announcement of spin off

Figure 2. Day-wise AAR and CAAR results during event window of 81 days: announcement of spin off

Table 5. AAR and CAAR results over different intervals during extended event window: announcement of spin off

Window	AAR	t-stats	P-value	CAAR	t-stats	P-value
(−40, −21)	0.0015	0.5757	0.3380	0.0300	2.5745	0.0145
(−20, −1)	0.0009	0.3337	0.3773	0.0174	1.4925	0.1310
(−40, −35)	−0.0007	−0.2712	0.3845	−0.0042	−0.6644	0.3199
(−35, −30)	0.0015	0.5769	0.3378	0.0090	1.4130	0.1470
(−30, −25)	0.0016	0.6292	0.3273	0.0098	1.5412	0.1217
(−25, −20)	0.0035	1.3507	0.1602	0.0176	3.0202	0.0042
(−20, −15)	−0.0008	−0.3066	0.3806	−0.0048	−0.7510	0.3009
(−15, −10)	0.0014	0.5437	0.3441	0.0085	1.3319	0.1643
(−10, −5)	0.0005	0.1789	0.3926	0.0028	0.4382	0.3624
(−5, −1)	0.0021	0.8099	0.2874	0.0106	1.8111	0.0774
(−3, −1)	0.0030	1.1390	0.2086	0.0089	1.9728	0.0570
(−1,0)	0.0017	0.6454	0.3239	0.0034	0.9128	0.2630
(−1, +1)	0.0038	1.4512	0.1392	0.0113	2.5136	0.0169
(0, +1)	0.0040	1.5531	0.1194	0.0081	2.1964	0.0358
(+1, +3)	0.0073	2.7828	0.0083	0.0218	4.8200	0.0000
(+1, +5)	0.0062	2.3687	0.0241	0.0309	5.2965	0.0000
(+5, +10)	0.0009	0.3374	0.3769	0.0053	0.8264	0.2835
(+10,+15)	0.0001	0.0498	0.3984	0.0008	0.1219	0.3960
(+15,+20)	0.0000	−0.0152	0.3989	−0.0002	−0.0373	0.3987
(+20,+25)	0.0003	0.1015	0.3969	0.0016	0.2486	0.3868
(+25,+30)	0.0001	0.0413	0.3986	0.0006	0.1011	0.3969
(+30,+35)	−0.0005	−0.1836	0.3923	−0.0029	−0.4498	0.3606
(+35,+40)	0.0015	0.5673	0.3396	0.0089	1.3896	0.1519
(+1,+20)	0.0015	0.5918	0.3349	0.0309	2.6466	0.0120
(+21,+40)	0.0001	0.0483	0.3985	0.0025	0.2158	0.3898

Figure 3. Day-wise AAR and CAAR results during event window of 41 days for Low-Price Scripts: announcement of spin off

Figure 4. Day-wise AAR and CAAR results during event window of 41 days for High-Price Scripts: announcement of spin off

Figure 5. Day-wise AAR and CAAR results during event window of 41 days for comaprison between High and Low-Price Scripts: announcement of spin off

Table 6. AAR and CAAR results of each day during event window for low-price script: announcement of spin off

Day	AAR	CAAR	t-stats	p-value	Day	AAR	CAAR	t-stats	p-value
−20	−0.00010	−0.00010	−0.03	0.40	1	0.01380	0.05288	3.80	0.00
−19	−0.00426	−0.00435	−1.17	0.20	2	0.00399	0.05688	1.10	0.22
−18	−0.00003	−0.00439	−0.01	0.40	3	0.00278	0.05966	0.77	0.30
−17	0.00387	−0.00051	1.07	0.23	4	0.00973	0.06939	2.68	0.01
−16	0.00060	0.00008	0.16	0.39	5	0.00205	0.07144	0.57	0.34
−15	0.00283	0.00291	0.78	0.29	6	0.00092	0.07236	0.25	0.39
−14	0.00309	0.00600	0.85	0.28	7	0.00102	0.07338	0.28	0.38
−13	0.00618	0.01218	1.70	0.09	8	−0.00034	0.07304	−0.09	0.40
−12	0.00506	0.01724	1.40	0.15	9	0.00337	0.07640	0.93	0.26
−11	0.00412	0.02136	1.14	0.21	10	−0.00017	0.07623	−0.05	0.40
−10	−0.00209	0.01926	−0.58	0.34	11	−0.00045	0.07578	−0.12	0.40
−9	0.00038	0.01964	0.10	0.40	12	−0.00122	0.07456	−0.34	0.38
−8	0.00080	0.02044	0.22	0.39	13	−0.00151	0.07305	−0.42	0.37
−7	0.00416	0.02460	1.15	0.21	14	0.00217	0.07523	0.60	0.33
−6	−0.00546	0.01914	−1.51	0.13	15	0.00017	0.07539	0.05	0.40
−5	0.00376	0.02290	1.04	0.23	16	0.00021	0.07560	0.06	0.40
−4	−0.00003	0.02287	−0.01	0.40	17	0.00190	0.07750	0.52	0.35
−3	0.00525	0.02812	1.45	0.14	18	−0.00049	0.07701	−0.13	0.40
−2	0.00673	0.03485	1.86	0.07	19	0.00180	0.07881	0.50	0.35
−1	−0.00031	0.03454	−0.08	0.40	20	0.00221	0.08102	0.61	0.33
0	0.00455	0.03909	1.25	0.18

The table shows the average abnormal returns (AAR) and cumulative average abnormal returns (CAAR) of each day during event window around the announcement of spin-offs, reflecting the short-term price effect on the spin-off announcement for low-price script. N stands for the sample size, t-stat is the t-statistic for significance. The standardised cross-sectional t-test is used for the parametric t-test.

Table 7. AAR and CAAR results of each day during event window for high-price script: announcement of spin off

Day	AAR	CAAR	t-stats	p-value	Day	AAR	CAAR	t-stats	p-value
−20	−0.00489	−0.00489	−1.49	0.13	1	0.01319	0.01264	4.03	0.00
−19	−0.00212	−0.00701	−0.65	0.32	2	0.00397	0.01661	1.21	0.19
−18	−0.00078	−0.00779	−0.24	0.39	3	0.00790	0.02452	2.41	0.02
−17	0.00450	−0.00329	1.37	0.16	4	−0.00106	0.02345	−0.32	0.38
−16	0.00016	−0.00313	0.05	0.40	5	−0.00400	0.01945	−1.22	0.19
−15	−0.00038	−0.00351	−0.12	0.40	6	−0.00563	0.01382	−1.72	0.09
−14	0.00029	−0.00322	0.09	0.40	7	−0.00276	0.01106	−0.84	0.28
−13	0.00003	−0.00319	0.01	0.40	8	−0.00041	0.01065	−0.13	0.40
−12	−0.00267	−0.00586	−0.82	0.29	9	0.00176	0.01241	0.54	0.35
−11	0.00115	−0.00471	0.35	0.38	10	−0.00043	0.01197	−0.13	0.40
−10	−0.00038	−0.00509	−0.12	0.40	11	−0.00077	0.01121	−0.23	0.39
−9	−0.00367	−0.00877	−1.12	0.21	12	−0.00371	0.00750	−1.13	0.21
−8	−0.00112	−0.00989	−0.34	0.38	13	0.00450	0.01201	1.37	0.16
−7	−0.00465	−0.01454	−1.42	0.15	14	−0.00005	0.01196	−0.01	0.40
−6	0.00085	−0.01369	0.26	0.39	15	−0.00539	0.00656	−1.65	0.10
−5	0.00196	−0.01172	0.60	0.33	16	−0.00212	0.00445	−0.65	0.32
−4	0.00015	−0.01157	0.04	0.40	17	0.00099	0.00544	0.30	0.38
−3	0.00066	−0.01092	0.20	0.39	18	0.00070	0.00614	0.21	0.39
−2	0.00060	−0.01032	0.18	0.39	19	−0.00151	0.00463	−0.46	0.36
−1	0.00007	−0.01025	0.02	0.40	20	0.00243	0.00706	0.74	0.30
0	0.00970	−0.00055	2.96	0.00

The table shows the average abnormal returns (AAR) and cumulative average abnormal returns (CAAR) of each day during event window around the announcement of spin-offs, reflecting the short-term price effect on the spin-off announcement for high-price script. N stands for the sample size, t-stat is the t-statistic for significance. The standardised cross-sectional t-test is used for the parametric t-test.

Table 8. AAR and CAAR results over different intervals during event window for low-price script: announcement of spin off

Intervals	N	AAR	t-stats	p-value	CAAR	t-stats	p-value
(−20, −15)	116	0.00049	0.13	0.40	0.00291	0.33	0.38
(−15, −10)	116	0.0032	0.88	0.27	0.01918	2.16	0.04
(−10, −5)	116	0.00026	0.07	0.40	0.00155	0.17	0.39
(−5, −1)	116	0.00308	0.85	0.28	0.0154	1.9	0.07
(−3, −1)	116	0.00389	1.07	0.23	0.01167	1.86	0.07
(−1,0)	116	0.00212	0.58	0.34	0.00424	0.83	0.28
(−1, +1)	116	0.00601	1.66	0.10	0.01803	2.87	0.01
(0, +1)	116	0.00917	2.53	0.02	0.01834	3.58	0.00
(+1,3)	116	0.00686	1.89	0.07	0.02057	3.27	0.00
(+1, +5)	116	0.00647	1.78	0.08	0.03235	3.99	0.00
(+5, +10)	116	0.00114	0.31	0.38	0.00685	0.77	0.30
(+10, +15)	116	−0.00017	−0.05	0.40	−0.00101	−0.11	0.40
(+15, −20)	116	0.00097	0.27	0.38	0.0058	0.65	0.32

Table 9. AAR and CAAR results over different intervals during event window for high-price script: announcement of spin off

Intervals	N	AAR	t-stats	p-value	CAAR	t-stats	p-value
(−20, −15)	105	−0.00058	−0.18	0.39	−0.00351	−0.44	0.36
(−15, −10)	105	−0.00033	−0.10	0.40	−0.00197	−0.25	0.39
(−10, −5)	105	−0.00117	−0.36	0.37	−0.00701	−0.87	0.27
(−5, −1)	105	0.00069	0.21	0.39	0.00344	0.47	0.36
(−3, −1)	105	0.00044	0.13	0.40	0.00132	0.23	0.39
(−1,0)	105	0.00488	1.49	0.13	0.00977	2.11	0.04
(−1, +1)	105	0.00765	2.34	0.03	0.02296	4.05	0.00
(0, +1)	105	0.01144	3.49	0.00	0.02289	4.94	0.00
(+1,3)	105	0.00836	2.55	0.02	0.02507	4.42	0.00
(+1, +5)	105	0.00400	1.22	0.19	0.02000	2.73	0.01
(+5, +10)	105	−0.00191	−0.58	0.34	−0.01148	−1.43	0.14
(+10, +15)	105	−0.00097	−0.30	0.38	−0.00584	−0.73	0.31
(+15, −20)	105	−0.00082	−0.25	0.39	−0.00489	−0.61	0.33

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