Descriptive statistics of data sample

Consequently, the final sample consists of 1244 transactions divided on 98 spin-offs and 1146 sell-offs.³⁰ The purpose of the thorough screening process is to ensure that the transactions included were either spin-offs or sell-offs by nature. In addition, the criteria were to ensure comparability of sample firms increasing ability to capture the true underlying value creation effects. It should be noted that the 1,244 transactions are our final base sample. However, various analyses may require additional specific data, why even further transactions may have been discarded for the specific analyses. We have highlighted the number of transactions included in the various analyses for trans-parency purposes.

such as the IT bubble in 2000, the global financial crisis in 2008 and 2009 and the Covid-19 lockdown in 2020. The number of both spin-offs and sell-offs are higher in years with booming global economy.

As depicted in the graph, a substantial number of transactions in the sample are announced and completed around years with financial crisis which might affect the performance of the firms around divestment.

Table 10 provides an overview of the transactions included in the data set distributed on geograph-ical location of the parent firm. As mentioned before, the geographgeograph-ical location of the parent is based on the official registration location in the Capital IQ database. However, this approach does not ac-count for firms selecting registration location based on tax or legislation related motives. The same problem would appear using the listing location as firms might go public in other countries. However, the issue is considered to have limited impact, as only a few firms in the final data sample are regis-tered in countries such as Malta, Cyprus, and Luxembourg.

Table 10: Number of transactions per country per year from 2000 to 2020

As shown in Table 10, most transactions in the data sample are completed by parent firms located in the UK followed by Germany, France, and Sweden. The final data sample include transactions from a wide range of Western European countries operating under different tax and legislation re-gimes. Differences between tax legislation in individual countries might affect the value creation of divestitures.

Interestingly, about half of the spin-offs in the data sample are completed by firms in UK and Sweden.

According to Veld and Veld-Merkoulova (2004), spin-offs in European countries are not associated

Year AT BE CY DK FI FR DE GR IE IT LU MA NE NO PT ES SE CH UK Total Cumulative (# of deals)

2000 2 2 4 1 3 22 34 34

2001 2 1 1 8 5 3 2 3 4 4 4 25 62 96

2002 1 1 5 7 5 2 4 8 4 1 1 2 6 16 63 159

2003 2 3 9 5 2 2 2 6 2 4 25 62 221

2004 3 2 5 9 5 1 7 6 1 9 1 6 3 19 77 298

2005 1 2 1 5 5 8 4 6 1 5 3 1 5 6 6 26 85 383

2006 2 1 1 4 9 8 3 4 1 5 2 2 5 5 27 79 462

2007 2 5 12 12 1 2 3 1 7 4 1 2 11 4 34 101 563

2008 1 1 4 3 8 1 2 5 1 2 6 5 20 59 622

2009 3 1 2 3 1 1 2 2 2 9 26 648

2010 1 4 4 2 3 1 7 2 5 5 4 16 54 702

2011 1 1 1 4 7 6 5 2 2 4 3 5 2 2 20 65 767

2012 1 1 7 2 4 4 2 1 3 1 1 7 5 20 59 826

2013 1 2 5 6 4 4 1 2 5 3 3 21 57 883

2014 2 1 4 4 6 4 3 1 1 4 3 4 4 5 19 65 948

2015 1 1 1 4 6 6 3 2 5 2 3 1 15 50 998

2016 2 1 2 8 7 1 4 2 2 1 8 3 15 56 1054

2017 2 4 6 7 6 5 3 2 1 2 10 2 20 70 1124

2018 2 3 2 2 2 3 1 1 3 3 2 23 47 1171

2019 2 2 3 5 1 4 1 4 1 1 1 4 7 12 48 1219

2020 1 3 2 2 1 2 1 1 12 25 1244

Total 3 28 3 22 66 117 116 5 56 57 11 1 79 38 5 50 97 74 416 1244

Sell-offs 2 27 3 20 60 110 113 4 48 53 10 76 33 4 50 73 69 391 1146

Spin-offs 1 1 2 6 7 3 1 8 4 1 1 3 5 1 24 5 25 98

Data sample overview on country and year of announcement

with tax problems as tax payments can be deferred.³¹ However, in both Germany and France, the investors do not know if the spin-off will be subject to taxation when the spin-off is announced. In the remaining part of this thesis, we do not account for potential differences in taxation between countries.

Table 11 provides an overview of parent firms in spin-off and sell-off transactions by industry.³² The sample of transactions is clearly dominated by parent firms within Manufacturing (SIC codes 2000-3999), Services (SIC codes 7000-8999) and Transportation, Communications, Electric, Gas and Sanitary service (SIC Codes 4000-4999).

Table 11: Number of transactions per industry group

As evident from Table 12, the average deal size of sell-offs included in the final data sample is DKK 2,855m which is lower than the average size on DKK 16,456m for spin-offs. A similar result is ob-tained using median values indicating that firms spin off business units of greater value compared to business units that are sold. As discussed in Section 4.2.4, one explanation might be that larger units are more likely to survive as stand-alone units (Nixon, et al., 2000). The mean and the median size in Total Assets and Market Capitalization of firms in the sell-off and spin-off subsamples are close to each other indicating that the difference in size of the divested unit is not explained by differences in the size of parent firms in the two subsamples. The difference in mean is caused by a few very large firms resulting in a larger average size of sell-off parents.

31 The ‘Merger Directive’ was adopted by the European Union in 1990 implying that tax authorities consider a spin-off as the rearrangement of investments that the investor already owns resulting in no taxes. However, several tax authorities in several European countries still see a spin-off as a distribution of income or capital and tax it accordingly (Veld & Veld-Merkoulova, 2009).

32 Please refer to Appendix 3 for a specified list of number of firms in each two-digit SIC code category.

Parent Subsidiary Parent Subsidiary

0100-0999 Agriculture, Forestry and Fishing - 6 -

-1000-1499 Mining 44 36 8 6

1500-1799 Construction 58 47 5 2

1800-1999 Not used - - -

-2000-3999 Manufacturing 605 438 39 41

4000-4999 Transportation, Communications, Electric, Gas and Sanitary service 162 132 16 11

5000-5199 Wholesale Trade 36 92 5 6

5200-5999 Retail Trade 59 52 7 7

6000-6799 Finance, Insurance and Real Estate - 87 - 8

7000-8999 Services - 236 - 17

9100-9729 Public Administration - 1 -

-9900-9999 Nonclassifiable - 19 -

-Total 1,146 98

SIC codes Category name

Table 11: Overview of data sample on SIC Code category

Sell-offs Spin-offs

Table 12: Selected financial characteristics for parent firms

Table 12 shows that both the mean and the median Tobin’s Q of firms selling off businesses are substantial higher compared to firms engaged in sell-offs. The difference in Tobin’s Q suggests that firms with higher pre-divestiture equity valuation relative to their intrinsic value are more likely to divest their assets through a sell-off while firms with lower intrinsic value are more likely to divest through spin-offs. Another interpretation is that firms divesting through sell-offs experience less prob-lems of asymmetrical information and thus undervaluation compared to firms spinning off busi-nesses. The low Tobin’s Q of spin-offs can be related to the information asymmetry motive of com-pleting divestments. As discussed in Section 4.2, spin-offs are particularly relevant for firms where management perceives the share price as undervalued due complexity in cash flow streams or a potential conglomerate discounts. However, the idiosyncratic volatility is higher for firms in the sell-off sample indicating more information asymmetry compared to firms in the spin-sell-off sample.

Characteristics n Mean Median n Mean Median n Mean Median

Deal Value 1,244 3,926 574 1,146 2,855 527 98 16,456 3,668

Revenue 1,244 136,749 28,757 1,146 143,188 28,757 98 60,972 14,636

Total Assets 1,244 240,887 47,239 1,146 254,156 46,671 98 89,510 26,304 Market Capitalization 1,244 91,008 20,786 1,146 92,578 20,941 98 72,645 17,793

Relative size 1,244 5.3% 3.1% 1,146 3.4% 2.6% 98 28.2% 21.4%

Tobin's Q* 1,223 7.88 6.18 1,125 8.43 6.41 98 1.49 1.06

Idiosyncratic volatility* 1,186 0.0052 0.0045 1,090 0.0053 0.0045 96 0.0050 0.0037 Selected financial characteristics (DKKm)

Total sample Sell-offs Spin-offs

All figures above are denominated in million DKK. *The number of observations (n) is lower due to missing accounting data on specific variables for a few observations included in the final data sample