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

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.