Although, the identification of cases where the market value of a parent's holdings in a subsidiary exceeds the entire market value of the consolidated parent firm is notable; even some of the market value ratios below one are impressive, given the relative proportion of assets.
These spin-offs illustrate that through prudent management, shareholders of the parent do not necessarily appear to be highly exposed to untimely capital gains recognition, certainly not to the extent required to justify the resulting market value ratios.
These predictions are inconsistent with the observed market value ratios. An agency-based explanation appears unlikely.
Market Value Ratio = [P.sub.S][S.sub.S\P] + [D.sub.S\P] / [P.sub.P][S.sub.P] + [D.sub.P] (2)
In Table I, we see that on the close of the first day of trading, the market value ratio for both TURF and PFS Web (PFSW) are 1.45 and 1.16, respectively.
A high market value ratio is not surprising if the carve-out subsidiary is shielded from a large potential legal liability of the parent.
Because of the possibility of dilution effects, the omission of outstanding off-balancesheet derivative contracts is likely to bias the market value ratio estimates.
Adjusted Market Value Ratio = [P.sub.S][S.sub.S\P] + [D.sub.S\P] + [O.sub.S\P] / [P.sub.P][S.sub.P] + [D.sub.P] + [O.sub.P] (7)
(16.) The variability of exposures at the level of individual firms is apparent in the dispersion of firms' net market value ratios. These ratios are the net market value of a firm's contracts as a proportion of the value of either the positive or the negative market value contracts, whichever is smaller in absolute value.
Still, for some dealers the net market value as a percentage of total market value of their contracts was significantly higher than for the market as a whole.(16) However, whether the higher net market value ratio of an individual firm's position represents significant price risk for that firm cannot be determined without taking into account the firm's offsetting cash market and exchange-traded futures positions.