We find that improvements in operating performance following equity carve-outs
are limited to the parent firms that completely divest their ownership stake in the subsidiary.
Announcements of equity carve-outs
produce positive stock returns for parent firms (see, e.
Notwithstanding the various value gains or losses created by such structural ownership changes, the law of one price prescribes a particular pricing relation for equity carve-outs
While the economic benefits of leveraged transactions have been studied extensively (see, for example, Jensen, 1989), there has been somewhat less investigation of equity-based restructurings, such as spin-offs, equity carve-outs
, and dual-class recapitalizations.
Schipper and Smith (1983 and 1986) document positive market reactions to the announcements of both equity carve-outs
and spin-offs of corporate as sets.
Nanda (1991), Slovin and Sushka (1995, 1997), and Schill and Zhou (2001) point out that equity carve-outs
in part reflect the differential mispricing of parent and subsidiary shares.
For a sample period 1980 through 1991, the authors found that equity carve-outs
were associated with significantly negative abnormal returns to other industry members.
The results suggest that equity carve-outs
are an effective way for companies to exploit growth opportunities and increase shareholder value.
With CHC's current market capitalization under $400 million, it is easy to understand that these planned equity carve-outs
may well unlock the true value of these entities and enhance the investments our shareholders have made in Computer Horizons Corp.
We examine the efficiency of initial public offering (IPO) pricing using a sample o[over 300 equity carve-outs
from 1985 to 2009.
on average are associated with positive abnormal returns of 2 percent.
At least that's the main idea of taking a business unit public through a spin-off, tracking stock, or equity carve-out