With a total of 235 sample firms covering from 1966 to 2009 we investigate the effect of thedifference of opinion on cross-sectional variations in abnormal returns of the firm – the firm which experiences temporal surges in the demand for its stocks immediately following the announcement of a corporate spin off. The proxies for the measurements of difference of opinion are abstracted from trading volume and concomitant changes in abnormal returns. Our findings are: (i) The enhancement of value of the firm is the predominant motivation behind corporate spinoff ; (ii)the firm size effect is prominent in wealth gain in that small firms realize much greater post-spinoff value of the firm than large firms; (iii)Whether volumebased differences of investor opinionsare compared with those of the “liquidity effects” or other proxy measures, such as “analysts’ earnings forecasts, ” “abnormal return patterns” and “ownership dispersions,” volume turnover statistics are the reliable proxy measure mirroring the heterogeneous investor reactions to
a spinoff news.
Key words: Spinoffs, Investor disagreement, event study, announcement effect, value creation
