Spin-offs in an Environment of Bank Debt


  • Louis Murray

    Corresponding author
    1. The author is at the School of Business, University College Dublin. He wishes to thank Mohamed Ariff, Hugh Byrne, and participants at the BAA and EFMA annual conferences, for their helpful comments.
    Search for more papers by this author

  • He also wishes to thank an anonymous referee and the editor Andrew Stark, whose suggestions have considerably improved the paper. Any errors remain the author's own. Support from the UCD Research Fund is also gratefully acknowledged.

* Address for correspondence: Louis Murray, School of Business, University College Dublin, Blackrock, Co. Dublin, Ireland.
e-mail: Louis.Murray@UCD.IE


Abstract:  An assessment of the wealth impact of spin-offs involving UK firms is of interest, as they tend to access debt through banks rather than capital markets. Banks will have a different relationship with shareholders, so the distribution of returns may differ from that previously observed. The short and long-term impact on both parent and spin-off shareholders is investigated. Possible reasons for a positive returns response, including an anticipated acquisition premium, and management focus related gains, are considered. Annual financial ratios offer a further evaluation of operating performance and assess the impact on levels of leverage in parents and spin-offs.