Do financial synergies explain corporate spin-offs?

Abstract

This paper investigates the role of financial synergies as precursors of spin-offs. Our sample includes 106 parent firms that spun-off a subsidiary during the period 1983-2015. The results highlight that negative financial synergies do not have a statistically significant impact on the spin-off likelihood. Correlation among firms, however, significantly influences the choice to spin-off a subsidiary. While the results are insignificant, the trend shows that when present, negative financial synergies can increase the probability of spinning-off a subsidiary up to four percent. Correlation among firms significantly affects the probability: an increase of one quartile can impact the spin-off likelihood up to fifteen percent. In addition, this paper touches upon the relationship between financial synergies and total leverage. Looking at the relation between financial synergies and leverage, parent and target firms with negative financial synergies increased their joint leverage more than parent and target firms with positive financial synergies. Nevertheless, the low number of data points in our sample impacts the statistical significance of this trend. While in this current sample financial synergies seem not to have any material impact, these results are promising for further research. Keywords: Financial synergies; Spin-off; Restructuring JEL classifications: G30, G34, G39