There is a broad consensus in the literature that spinoffs tend to create value for shareholders and exhibit positive long‐run excess returns. However, most of the prior studies are confined to the US and the European cases. The spinoff problems in Hong Kong are surprisingly under‐studied despite its important role as a global center of capital formation. In this paper, we find that there is a short‐run value creation for the Hong Kong spinoffs. However, the financial health of the spinoff companies, measured by various financial ratios, tends to deteriorate in the long‐run. In general, Hong Kong spinoffs generate negative returns to investors.
Journal of Asia Business Studies – Emerald Publishing
Published: Oct 16, 2009
Keywords: Spinoff; Value creation; Cash ratio; Current ratio; Debt‐to‐Equity Ratio