Institutional trading,information production,and corporate spin-offs |
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| Institution: | 1. Fulton Hall 330, Carroll School of Management, Boston College, Chestnut Hill, MA 02467, USA;2. Business Education Complex 2919, E. J. Ourso College of Business, Louisiana State University, Baton Rouge, LA 70803, USA;1. Copenhagen Business School, Denmark;2. University of Oxford, UK;1. Aarhus University, Fuglesangs Allé 4, 8210 Aarhus V, Denmark;2. Muma College of Business, BSN 3403, University of South Florida, Tampa, FL 33620, USA;1. Carroll School of Management, Boston College, Chestnut Hill, MA 02467, United States;2. Gabelli School of Business, Fordham University, New York, NY 10023, United States;1. Fisher College of Business, The Ohio State University, 700E Fisher Hall, 2100 Neil Avenue, Columbus, OH 43210, USA;2. The Wharton School, University of Pennsylvania, 1316 SH-DH, Philadelphia, PA 19104, USA;1. SKEMA Business School, Avenue Willy Brandt, F-59777 Euralille, France;2. Université Lille Nord de France, 1 place Déliot - BP381, F-59020 Lille, France;3. Rennes School of Business, 2 Rue Robert d''Arbrissel, 35065 Rennes, France |
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| Abstract: | We use a large sample of transaction-level institutional trading data to analyze, for the first time in the literature, the role of institutional investors as producers of information around corporate spin-offs. Our results may be summarized as follows. First, there is a significant imbalance in post-spin-off institutional trading between the equity of new parent firms versus subsidiaries, suggesting that spin-offs increase institutional investors' welfare by relaxing a trading constraint. This imbalance in institutional trading is driven by differences in information asymmetry across the two spun-off firm divisions. Second, institutional trading around spin-offs has significant predictive power for the announcement effect of a spin-off and for post-spin-off long-run stock returns. Third, institutional investors are able to realize significant abnormal profits by trading in the subsidiary firm equity in the first quarter post-spin-off. Overall, we show that spin-offs enhance information production by institutional investors, who profit from this enhanced information production. |
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