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The Spinoff and Merger Ex-Date Effects

Authors

  • ANAND M. VIJH

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    • The University of Iowa. I have benefitted from comments of the seminar participants at the Georgia Institute of Technology, the University of Iowa, the Rutgers University, the University of Southern California, and the State University of New York at Buffalo. I wish to thank Frank Bacon, Steve Buser, Harry DeAngelo, Bruno Gerard, John Matsusaka, Vikram Nanda, and Sankarasubramanian for useful comments. I also wish to thank Bill Johnston of LaBranche and Company, Jaimie Brust of the Bank of America, Jim Shapiro of the NYSE, and other members of the NYSE and the brokerage operations of Charles Schwab and Fidelity Plus for useful discussions. I am especially obliged to René Stulz (the editor) and an anonymous referee for many suggestions that improved this article substantially. The work on this article was done while the author was at the University of Southern California. All errors are only my responsibility.

ABSTRACT

This article shows that some of the wealth gains from financial decisions involving changes in security form occur on predictable ex dates. For a sample of 113 spinoffs during 1964 to 90, we document an average excess return of 3.0 percent on ex dates, roughly the same magnitude as the average announcement-date return. We conjecture that the spinoff ex-date return arises because the parent and subsidiary stocks attract different investors who prefer to buy the separated shares after the ex date. We also document that, on average, the target shareholders in stock-for-stock mergers earn an excess return of 1.5 percent on merger ex dates.

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