Published Online:July 2025
Product Name:The IUP Journal of Applied Finance
Product Type:Article
Product Code:IJAF020725
DOI:10.71329/IUPJAF/2025.31.3.18-34
Author Name:Meghana Bhat and A S Shiralashetti
Availability:YES
Subject/Domain:Finance
Download Format:PDF
Pages:18-34
A spin-off creates distinct and targeted investment opportunities for shareholders, allowing them to own shares in both the parent company and the newly formed entity. This study aims to examine the effects of spin-offs on the long-term stock performance of the parent company and to investigate whether long-term performance is associated with factors such as sector, company size, and corporate focus. The analysis includes 55 completed spin-off announcements made by Indian-listed companies from January 2010 to December 2021. Using the buy-and-hold abnormal return (BHAR) method, the long-term effect on the parent company stock return is analyzed, covering a period from the announcement to three years post execution day. Overall, the study reveals that spin-offs have a positive impact on long-term stock performance, despite a temporary price dip around the execution month, which is attributed to price correction resulting from the issuance of shares in the new company. It is also found that corporate focus and size of the company have a positive influence on the stock performance. Cross-industry spin-offs and large companies showed higher returns compared to own-industry spin-offs and small companies. The study results suggest that spin-offs can be an effective strategy to unlock shareholders’ value, particularly when it is cross-industry spin-offs and large companies. Investors can also make a profit by investing and holding for the long term in companies that are announcing spin-offs.
In recent years, spin-offs have become increasingly prevalent across the global market, including emerging economies such as India. A spin-off occurs when a company separates a portion of its business to form a new, independent entity.