The Impact of Spin-Off Announcement Toward Stock Performance: Evidence from Global Telecommunication Companies

Abstract

This study aims to give telecommunication companies insight into how markets react toward spin-off announcements as one of the considerations for whether to spin-off or continue to be a vertically integrated telecommunication company. Analysis method is based on a prior study by measuring the announcement effect using event study methodology. The novelty of this study is that the scope is global, and it focuses on spin-off announcements on telecommunication companies. This study shows empirical evidence of the spin-off announcement effect based on a sample of 50 spin-off events from telecommunication companies based in 20 countries spreading over six continents. It shows mixed results between negative and positive Average Abnormal Returns (AAR) around the spin-off events, with the majority of the Average Abnormal Returns (AAR) being negative. It also shows that the Cumulative Average Abnormal Return (CAAR) in the 20 trading days post-event window after spin-off announcement is negative. Recent spin-offs do not exhibit the same significant Cumulative Average Abnormal Return (CAAR) behavior as the past one. The result of this study is also consistent with the semi strong efficient market hypothesis.