Share price reaction to unbundling announcements – investigation of JSE listed companies

Abstract

This paper examines the market reaction to unbundling announcements of JSE listed firms over the period 2000 to 2020. This research aims to improve on and add to existing literature by comparing the companies in terms of two subsets based on size and to see which yields better performance. The final sample used was made up of 29 parent firms and 14 spin-off firms listed on the JSE. An event study methodology is adopted examining the abnormal returns of the parent firms over an eleven day event window. The abnormal returns for the spin-off firms are assessed over a five-day period post the announcement date. The results in this research examine the market reaction to unbundling and are contrasted with international studies aligned to literature relating to share price performance. Financial ratios are assessed to understand how the value of the firm has been favorable or unfavorable over the event window chosen and sample of parent firms. No significant results and differences in the average abnormal returns are found pre and post the unbundling transactions. Corporate and capital market discussions are addressed and the results are surprising as one expects better performance to be examined post an unbundling transaction. However, further research can be done extending the event window to address the debate of long term performance. This will confirm the impact on share price reactions to the market and overall performance of the firms. The results found in this research report may be owing to the lack of sophistication to enable the financial activities to be performance and/or value enhancing mechanisms for South African firms. Overall, this research demonstrates how corporate actions end up underperforming similarly to M&A synergies as a whole but still presents value adding results