What You Need To Know Before Buying Into A Spin-Off

Is it wise to invest in a spin-off? The evidence is mixed. A much-cited study, published in 1992 and titled Spin-off performance: A case of overstated expectations? Found that the performance of divested business units often deteriorated following the spin, as these units were divested due to their underperformance. The parent conducted the spin to boost underlying performance. However, a more recent study, Firm performance and focus: long-run stock market performance following spinoffs conducted during 1999, found that over the long run, the performance of both the spinco and parent company improved. A 2010 meta-analysis, Divestiture and Firm Performance: A…