WITHDRAWN SPIN‐OFFS: AN EMPIRICAL ANALYSIS

We examine market reaction to corporate spin‐offs that are eventually withdrawn. These spin‐offs do not experience the significant positive share price response reported for spin‐offs generally. The overall market reaction to both the initial spin‐off announcement and the withdrawal announcement is not significant. When a reason is provided for withdrawing a spin‐off, there is a significant positive market reaction; otherwise, there is a significant negative reaction. Firms that withdraw a spin‐off without stating a reason experience significant deterioration in industry‐adjusted operating performance in the three years following the withdrawal. These results indicate the market can anticipate the viability of withdrawn spin‐offs at the time of the initial announcement. JEL classification: G34