Creating Values Through Corporate Demergers: A Study of Finance Companies Listed on The BSE

The paper aims to investigate whether companies that haveundergone demergers give rise to any abnormal returns due to the announcement effect. The companies under focus here relate to the finance industry in India.

To evaluate the abnormal returns in the short run, the event study methodology has been used on a sample of thirteen companies (after sample ltration) in the finance industry listed on BSE.

The companies undergoing demergers portrayed abnormal returns only on the day of announcement. No signiant (pre or post demerger) impact has been witnessed. Regarding the nancial parameters, less than fifty per cent of the sample companies were able to showcase an increase in their P/B and P/E ratios.

The study offers a new insight by focusing on a particular sector of the Indian economy. It also reects on the effectiveness of demergers as a corporate restructuring strategy.

The study can be used by corporates and analysts to scrutinise the efficiency of demergers as a corporate restructuring policy in terms of the perceived benets provided to the company and shareholders. Past data suggest that the cases of demergers in India are far less as compared to mergers and amalgamations. Thus, companies planning to undertake such measures must be cautious of their outcomes.