Corporate Communication and Shareholder Retention: Evidence from Spin-Off Roadshows

Abstract

In this paper, I ask whether corporate communication programs influence shareholder retention. I use the tax-free corporate spin-off setting to study the communication programs of business units that spin-off from their parent firms and, in the process, inherit their parent firms’ shareholder base. When spin-off firms initiate a communication program in the pre-spin-off period, they maintain higher levels of post-spin-off institutional ownership and retain more of the inherited institutional shareholder base than when they do not communicate with investors. An important benefit of communication is that these firms avoid the stock price pressure commonly experienced by spin-off firms as a result of a sell-off by the inherited institutional shareholder base. This paper extends our understanding of corporate communication programs and the role of communication in retaining institutional ownership.