Journal of Management and Public Policy

Demergers of conglomerates are a common phenomenon in financial markets across the world. Carried out with different motives generally, in a share demerger program, the company distributes the shares of demerged entity to the existing shareholders without any consideration. Demergers in Indian companies are over a decade old phenomena, with many companies opting for the same. This paper examines the demergers and the announcement period price reaction of demergers during the year 2012–2014. The authors have studied total 51 demergers of companies listed in India and tried to establish that demergers results into abnormal returns for the shareholders of the parent company. Using event study methodology the authors have analyzed the security price performance of the announcement day effect 10 days prior to the announcement to 10 days post demerger announcement. They have found significant out-performance of the security over the benchmark index post demerger announcement ranging from 1.74% average abnormal return for a demerger announcement to 0.16% average abnormal return 10 days following the announcement.