Spin-offs and Sales of Assets: An Examination of Security Returns and Divestment Motivations

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Abstract
Event study research to date has generally used the cumulative average residuals technique and focused on stockholder announcement impacts while testing one or two hypotheses concerning divestment. There are two important reasons for departing from this tradition. First, recent evidence suggests that an examination of cross-sectional cumulative average residuals may result in detecting abnormal performance when none is present. Second, most of the hypotheses concerning divestment are consistent with positive returns to stockholders. This research isolates the impact of divestment on security holders by examining firms that have a single major divestment and no other seemingly important news events. The impacts at the announcement period and the divestment period are examined for subsamples of firms according to managerial motivations for divestment. Results indicate that when the sample is categorised this way, divestiture impacts vary between categories.

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