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

Abstract

This article documents the stock price performance of subsidiaries spun off by their corporate parents and of the parents that spun them off from 2001 to 2013. In doing so, it updates earlier studies that report excess returns for both parents and subsidiaries. The authors find that subsidiaries substantially outperformed reasonable benchmarks; parents did so as well, but by a much smaller margin. Further, a portfolio that buys all subsidiaries outperformed the Spin-Off Exchange-traded Fund, which itself outperformed the value-weighted market index. Spun-off subsidiaries and their parents have achieved superior returns over the most recent 13 years, as well as with superior returns over the previous 35 years, as documented by prior studies.

TOPICS: Exchange-traded funds and applications, portfolio management/multi-asset allocation