Asymmetric Information and Conglomerate Discount: Evidence from Spinoffs
The existing literature argues that diversified firms may be undervalued due to information asymmetry between a firms management and the market. Splitting the firms divisions into multiple business components will facilitate the market valuation of each component more accurately. We investigate the information hypothesis from corporate spinoffs from 1981 through 2004. We use the postspinoff data to reconstruct the diversified firm, assess the improvement in value at the combined firm level, and relate the value improvement to the change in the level of information asymmetry. We find that, prior to the spinoff, the sample firms have significantly higher levels of information asymmetry than their industry- and size-matched peers and the level of information asymmetry decreases slightly following the spinoff. We also find that the sample firms are valued at a substantial discount before the spinoff and the valuation discount is eliminated after the completion of the spinoff. The matching firms, however, do not trade a significant discount either pre- or post-spinoff, which is consistent with the view that only undervalued firms divest. More importantly, we find that the change in excess value around the spinoff is significantly and negatively related to the change in the level of information asymmetry. We conclude that information asymmetry is at least partly responsible for the diversification discount.
国际会议
大连
英文
1-41
2008-07-02（万方平台首次上网日期，不代表论文的发表时间）