Withdrawn Spin-Offs: An Empirical Analysis

We examine market reaction to corporate spin-offs that are eventually withdrawn.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 These results indicate the market is able to anticipate the viability of withdrawn spin-offs at the time of the initial announcement.