Value creation of spin-offs and carve-outs

This study investigates whether 1074 spin-offs and 803 carve-outs occurring in Europe
and the USA between 1990 and 2003 create value. There is a robust positive market
revaluation of roughly 1.0% to 3.0% for firms announcing a spin-off or carve-out of a
subsidiary. This effect is similar for carve-outs and spin-offs, despite their different natures.
Hence, the analysis on the long-term implications of spin-offs and carve-outs consequently
unveils substantial differences: While the average spin-off firm outperforms
the market, carve-outs considerably underperform. Over time it becomes obvious that
spin-offs improve the business itself thanks to the increased independence and the focus
on the core business, whereas managers time carve-outs and use them primarily as a
cheap mean of funding, one that does not improve the business.