Does communicating corporate parent brand heritage help spin‐off stock performance?

Abstract

Purpose

The purpose of this paper is to examine whether communicating a corporate parent brand's heritage in the form of the name, slogan or other reference helps a corporate spin‐off increase its post‐divestiture stock market value.

Design/methodology/approach

The authors collected stock market valuation data on spin‐offs in the USA during the period 1992‐2004 both on the spin‐off date and a year from that date and compared the change in the spin‐off's stock market valuation to a change in a broad stock market index, the S&P 500.

Findings

It was found that a spin‐off did not outperform a broad market index over the one year after divestiture. Second, spin‐offs that relied on parent brand heritage did not outperform those that did so. Third, using a parent brand's name, a more direct reference to parent brand heritage, did not result in higher spin‐off valuation than using other parent identifiers such as tag lines or slogans.

Research limitations/implications

A major implication of the findings is that shareholders and investors may not be considering a corporate parent's brand equity in evaluating the investment value of a spin‐off, in stark contrast to repeated findings of the importance of a parent brand's equity in a consumer's evaluation of a brand extension.

Practical implications

The results suggest that corporate managers need not be concerned with communicating parent brand associations to investors at the time of a spin‐off, at least for the purpose of boosting its future stock valuation.

Originality/value

This paper analyses the importance of corporate brand equity in investors' evaluation of spin‐offs, the first extension of traditional branding research into the domain of investors and the use of effects like stock valuation.

Citation

Bhat, S. and Burg, C.J. (2011), "Does communicating corporate parent brand heritage help spin‐off stock performance?", Corporate Communications: An International Journal, Vol. 16 No. 1, pp. 27-37. https://doi.org/10.1108/13563281111100953