Anchoring Effect and Spin-offs: A Case Study of Taiwan Companies, Asus and Yulon

This study uses a case study method to examine the spin-offs of Asus and Yulon. Both companies show negative cumulated abnormal returns after spin-off announcements and then return to the anchoring price as at the announcement day. The results are in contrast to the findings of Veld et al. (2004) and Schipper and Smith (1986). However, our results are consistent with Nanda¡¯s (1991) asymmetric information argument. Nanda (1991) suggests that the negative returns on the announcement day reflect overvaluation of the subsidiary company. The evidence shows that an anchoring effect is prevalent in companies conducting spin-offs in 2003. Also, the case study of ¡°Asus Rule¡± in Asus¡¯ spin-off points out the necessity of dynamic adjustments in industry policies in emerging markets.