A COMPREHENSIVE ANALYSIS OF THE SHAREHOLDER VALUE CREATION FROM SWEDISH SPIN-OFFS

Abstract

This thesis investigates the universe of Swedish tax-exempt Lex ASEA spin-offs since the start of the new millennium from the perspective of short-term and long-term stock price performance. The intention to spin off a subsidiary is viewed positively by investors, represented by a significant increase of the market's valuation of the company's equity by 2.82% on the date of announcement. The reaction closely arises on the announcement date, indicating fast and efficient pricing of expected future benefits from the new corporate structure. The group of firms divesting their subsidiary within the same industry and a relatively large portion of their market capitalization shows the largest abnormal returns, indicating that divestment size and corporate focus are determinant factors of abnormal returns. From evaluation of post-transaction performances of spin-offs, parents and value-weighted spinoff-parent combinations it cannot be statistically concluded that neither of the entities represent superior long-term investments compared to an index benchmark nor the hypothetical original firm. However, over a two-year investment horizon the spin-offs have outperformed index by 20.78 percentage points, over 10 percentage points better than their parents. Consequently, immediate value is created for shareholders of Swedish firms undertaking spin-off restructurings, whereas the long-term wealth effect is inconclusive but supportive of semi-strong form efficiency in the Swedish stock market.