Corporate Spin-Offs, Their Price Reactions and Determinants in Malaysia

Authors

  • Chung-Sin Yoon Alan Yoon Associates and Bond University, Australia
  • Mohamed Ariff Bond University, Australia

DOI:

https://doi.org/10.32890/ijbf2008.5.1.4

Keywords:

Spin-offs, Restructuring, Emerging Markets, Tax Motivation, Size, Age

Abstract

Spin-off as a form of financial restructuring has been examined in the US and the UK but not in other markets. This is a first study outside those markets. The evidence from a sample of 85 spin-off cases in Malaysia reveals that both the parent and the spin-off company stocks gain significant positive abnormal returns: parent firms earn smaller value while the spin-off firm gains substantially, much greater than is documented in other markets. Examining the factors correlated with the size of the spin-off effect, we find the abnormal returns are positively correlated with market capitalization and negatively correlated with age. The larger is the company or the newer is the company the greater is the magnitude of the positive abnormal returns.

 

References

Ariff M., and Johnson, L. W. (1990). “Securities Markets and Stock Pricing Evi-dence in a Developing Equity Market in Asia” Longman Professional Books, London, Singapore and Sydney.

Annuar, M. N., Ariff M and Shamsher M., (1994) “Is Kuala Lumpur’s Emerging Share Market Efficient?” Journal of International Financial Markets, In-stitutions and Money (4) 2 89-

Barry C B, Peavy J W, and Rodriguez M (1997) “Performance Characteristic of Emerging Capital Markets” Emerging Markets Quarterly (Spring) 41-48.

Brown, S. J., & Warner, J. B., (1985). “Using Stock Returns The Case of Event Studies” The Journal of Financial Economics 14: 3-31.

Copeland T, Lemgruber, E. F., and Mayers, D., (1987) “Corporate Spin-Offs: Multiple Announcement and Ex-Date Abnormal Performance” Modern Finance and Industrial Economics, Chapter 7 T E Copeland, ed. New York: Basil Blackwell Press.

Cusatis P.J., Miles. J. A., and Woolridge, J. R., (1993). “Restructuring through spin-offs” The Journal of Finance Economics 33: 293-311.

Fama, Eugene (1980). “Agency Problems and the Theory of the Firm,” Journal of Political Economy 88: 288-307

Fama, E., Fisher, J., & Roll, R., (1969). “The Adjustment of Stock Prices to New Information” International Economic Review 1-21.

Fama (1970) “Efficient Capital Markets: A Review of Theory and Empirical Work” The Journal of Finance 383-417 Government of Malaysia “The Companies Act of Malaysia 1965” Government Printers Government of Malaysia “The Real Property Gains Tax Act 1976” Government Printers

Galai, D., and Masulis, R., (1976). “The Option Pricing Model and the Risk Fac-tor of Stock” Journal of Financial Economics 3: 53-82.

Habib, M. A., Johnsen, D. B., and Naik, N. Y., (1997) “Spin-offs and Informa-tion” Working Paper, London Business School.

Hite, G. L., and Owers, J. E., (1983). “Security Price Reactions around Corporate Spin-Off Announcement” Journal of Financial Economics 12: 409-436.

Jensen M., and Meckling, W., (1976). “Theory of the Firm: Managerial Behavior, Agency Costs and Ownership Structure” Journal of Financial Economics 3: 305-360.

Johnson and Klein, J., (1996). “The effects of Spin-Offs on Corporate Investment and Performance” The Journal of Financial Research 19(2): 293-307.

John, T. A., (1993). “Optimality of Spin-Off and Allocation of Debt” Journal of Financial Quantitative Analysis 28: 139-160.

Schipper, K., and Abbie Smith (1983). “Effects of Recontracting on Shareholder Wealth - The Case of Voluntary Spin-offs” Journal of Financial Economics 12: 437-467.

Klein A (1986). “The Timing and Substance of Divestiture Announcements: Individual, simultaneous and Cumulative Effects” The Journal of Finance 41 (July): 685-697

Krishnaswami, S., and Subramaniam, M., (1999). “ Information Asymmetry, Valuation, and the Corporate Spin-offs Decision” Journal of Financial Economics 53: 73-112. Kuala Lumpur Stock Exchange “Companies Handbook” Volume 1-3.

Kudla, R. J., and McInish, T. H., (1988). “Divergence of Opinion and Corporate Spin-offs” Quarterly Review of Economics and Business 28(2): 20-29.

Lim, E. H., and Obiyathulla, I. B., (2002). “Price Reaction to Stock Repurchase; Evidence from the KLSE” Working Paper, International Islamic University Malaysia.

Miller, M., (1976). “Debt and Taxes” The Journal of Finance 31: 279-308.

Miles, M., and Rosenfeld, J., (1983). “The Effect of Voluntary Spin-Off Announcements on Shareholder Wealth” The Journal of Finance 38(5): 1597-1606.

Schipper, K., and Smith, A., (1983). “Effects of Re-contracting on Shareholder Wealth: The Case of Voluntary Spin-offs” Journal of Financial Economics 12: 437-467.

Seward, J., and Walsh, J., (1996). “The Governance and Control of Voluntary Corporate Spin-offs” Strategic Management Journal 17: 25-39.

Sharpe, W. F., (1963). “Capital Asset Prices: A Theory of Market Equilibrium under Condition of Risks” The Journal of Finance 3: 309-327.

Vijh, A. M., (1994). “The Spin-off and Merger Ex-Date Effects” The Journal of Finance 19(2): 581-609.

Downloads

Published

04-03-2008

Issue

Vol. 5 No. 1 (2008): International Journal of Banking and Finance (IJBF) Vol. 5, No.1, 2008

Section

Articles

How to Cite

Yoon, C.-S., & Ariff, M. (2008). Corporate Spin-Offs, Their Price Reactions and Determinants in Malaysia. International Journal of Banking and Finance, 5(1), 83-112. https://doi.org/10.32890/ijbf2008.5.1.4

Research impact

Harvested 2026-09-14
10 citations, from OpenAlex — the highest of the sources checked

Counts differ between services because each indexes a different body of literature. None of them is the whole picture.

Identifiers DOI 10.32890/ijbf2008.5.1.4 OpenAlex W1532488625

Most read articles by the same author(s)