ESCP Europe

Item type

Study and report

Dissertation

• MIM Master in Management Grande Ecole

Language

English

Publication year

2013

Subjects

SPLIT-UP - LIQUIDITY - STOCK EXCHANGE - MARKET FINANCE

Author's abstract. This paper investigates liquidity changes resulting from corporate spin-offs. More specifically, a sample of 34 spin-offs completed between 2005 and 2012 is analyzed. We infer liquidity from the turnover rate and the percentage bid-ask spread. Surprisingly, our findings show empirical evidence that, on average, liquidity decreases following spin-offs for parent firms and former subsidiaries. We find that liquidity is more likely to decrease if the spin-off ratio or the relative value of the subsidiary compared to its parent is high. Results also suggest that liquidity changes vary depending on overall market conditions. However, we do not find empirical evidence showing that the size of the spun-off subsidiary impacts, per se, the change in liquidity.