Investment Policies and Excess Returns in Corporate Spin-offs: Evidence from the US Market

This article analyzes excess returns generated by corporate spin-offs with respect to changes in investment policies of the spun-off companies. Following the spin-off, the best performing spun-off companies with low growth opportunities exhibit a significant reduction in investment and the best performing high-growth spun-off companies tend to increase or maintain the previous level of investment. The results provide evidence of the existence of a direct monotonic relationship between the size of the change in the level of investment, Tobin’s Q, and excess returns based on the Fama and French (J. financ. Econ. 33: 3–56, 1993) model.