European spin-offs Origin, value creation, and long-term performance

This paper tests the empirical validity of theoretical predictions on corporate spin-offs motivations and ex-post performance. Using a unique data set of completed spinoffs in twelve European countries we show that spin-off decisions are frequently triggered by firm’s governance changes, such as the appointment of a new CEO or a takeover threat. Post-transaction long-run stock returns and operating performance are observed for spin-off firms only, and mostly for internally-grown business units and parent-related (non-focusing) subsidiaries. We find no evidence that post-spin-off mergers of either parents or subsidiaries enhance long-term performance, or that focus-increasing spin-offs lead to efficiency improvements.