Risk parameter shifts: The case of spinoffs.

摘要

This study deals with measuring and testing the impact of spinoff transactions on the risk parameters of the parent firm stocks. This is achieved by employing CC-GARCH(1,1) and VC-GARCH(1,1) models to estimate the most-commonly used risk measures: the stock return total variance, made up of beta (systematic risk), and the residual variance (unsystematic risk).; We find that there are risk changes associated with spinoffs. However, only shifts in the total and residual variances last more than two years after the spinoff completion, while shocks to the betas dissipate within the year for the full sample. We observe increases in all risk measures to be permanent for more than two years only for the low-asymmetry, own-industry group of firms. Both the total and residual variance processes for the high-asymmetry, cross-industry subsample do not react significantly to the spinoff transaction. However, there is a 13.7% decrease in systematic risk significant at less than 10% confidence level. Therefore, this is the only group of spinoff parents that delivers some risk reduction for their shareholders.; As the beta shifts are on average small, spinoffs mostly increase the unsystematic part of the risk, making stock returns more unpredictable.; We fail to relate these risk changes to the debt burden variation. Therefore, we conclude that the source of the changes is possibly the diversification loss, causing increased volatility of post-event earnings and therefore increased information asymmetry. The only anomaly that we are not able to explain within the current hypothesis framework is a highly significant and persistent shift of the risk characteristics of the low-asymmetry, own-industry parent stocks.; Such findings cast doubts on the superior benefits of the average spinoff for ordinary shareholders, who may not be able to diversify away increased risks, as well as for the institutional holders, who have strict investment policy concerning the riskiness of investment assets. Therefore, the investors must be aware that an improved operational and stock performance of the spinoff parent company may come at the price of the stock risk increase.