Several academic studies have examined the investment performance of initial public offerings IPOs. Since the underwriters desire to have the offering sell out quickly, they have an incentive to underprice the securities offering. A number of studies have found that new equity issues are generally underpriced and produce positive abnormal shortterm returns. Like IPOs, spinoffs are issues which are new to the public capital markets. However, unlike IPOs, spinoffs do not involve an underwriter which determines the offering price of the security. Spinoffs are also similar to corporate selloffs in that a parent company makes a decision to divest a division or subsidiary however, in a spinoff the business unit is not sold for cash or securities. Instead, spinoffs occur when a parent corporation distributes its entire holdings of stock in a subsidiary on a prorata basis to the parent's shareholders. These transactions have the effect of completing the separation of the assets and liabilities of the parent and the subsidiary. Thus, two separate public corporations with the same proportional equity holdings now exist whereas only one firm existed previously.
Competitiveness Review: An International Business Journal incorporating Journal of Global Competitiveness – Emerald Publishing
Published: Jan 1, 1992
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