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The Stock Price Performance of Spin-Off Subsidiaries, Their Parents, and the Spin-Off EFT, 2001-2013

by John McConnell, Steven Sibley, Wei Xu

ARTICLE | The Journal of Portfolio Management | Vol. 42, No. 1, 2015


Abstract


Intermittently, (or, more accurately, episodically) market participants become curious about the investment performance of stocks with corporate parents that spin off their subsidiaries. They also become curious about the performance of the newly listed shares of spun-off entities. These episodes of curiosity customarily occur in tandem with or shortly following substantial stock market rises, increases in the frequency of corporate spin-offs, or calls for certain highly visible firms to undertake restructurings by spinning off their apparently underperforming divisions. The latter half of 2013 evidenced each of these phenomena. During the first half of 2013, the S&P 500 index increased by 12.6% and highly visible corporations, including Time Warner, Inc. and Sears Holdings Corp., spun off major operating components. Former Microsoft executives and board members called for the company to spin off XBox and Bing (Foley and Waters [2013]). All of the ingredients were in place.