Private Information and Spin‐off Performance

Following pro rata spin-offs, shareholders, including insiders, trade their stock holdings in public subsidiaries independently of trades in parent firms. This article examines the predictive ability of informed trading with respect to post-spin-off stock performance and corporate control transactions. I find that subsequent to spin-offs, insiders are substantial purchasers of stock in public subsidiaries and sellers in parent firms. The trades of insiders are significantly related to post-spin-off stock returns, takeovers, and delistings of spun-off firms. The results are highly significant for senior managers of public subsidiaries, but they do not generally hold for outside directors or large blockholders.