Original Research

Long-run performance of corporate spin-offs and sell-offs: Evidence from the JSE limited

Mitteran E. Nkongho, Daniel Makina
South African Journal of Economic and Management Sciences | Vol 23, No 1 | a3683 | DOI: https://doi.org/10.4102/sajems.v23i1.3683 | © 2020 Mitteran E. Nkongho, Daniel Makina | This work is licensed under CC Attribution 4.0
Submitted: 30 April 2020 | Published: 07 December 2020

About the author(s)

Mitteran E. Nkongho, Department of Finance, Risk Management and Banking, University of South Africa, Pretoria, South Africa
Daniel Makina, Department of Finance, Risk Management and Banking, University of South Africa, Pretoria, South Africa


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Abstract

Background: Prior to 1994, there were artificial restrictions on South African corporations as a result of isolation and sanctions. Thus, corporate unbundling activities in South Africa are still new relative to their overseas counterparts. Of recent, no study has vividly examined the long-run performance of spin-offs and sell-offs on the JSE Limited. In the most recent study on spin-offs and sell-offs, performance was investigated for less than 2 years. Long-run performance of spin-offs and sell-offs should be examined for at least 3 years in line with overseas literature. In order to fill the gap in previous literature, this study updates existing literature, and extends the investigation horizon to 4 years.

Aim: This study seeks to investigate the long-run performance of spin-offs and sell-offs on the JSE Limited.

Settings: This study matches the performance of an event firm to that of a non-event firm. The matching was done at sector and industrial level, using the value of equity as a matching measure. Performance was examined between 2000 and 2016, for up to 4 years.

Methods: The method of analysis is the matching firm technique under buy and hold abnormal returns. The creation of shareholder’s wealth was investigated for 26 spin-offs, 17 parent spin-offs, 16 sell-offs and 23 parent sell-offs.

Results: Abnormal returns are significantly positive for spin-offs, parent spin-offs and sell-offs for 1–4 years after unbundling. Only parent sell-offs failed to follow this path.

Conclusion: According to this study, spin-offs and sell-offs unlock shareholders’ wealth for up to 4 years on the JSE Limited.


Keywords

corporate unbundling; spin-offs; parent spin-offs; sell-offs; parent sell-offs; matching firm; market value of equity; mergers and acquisition.

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