Deciphering the Motives for Equity Carve-Outs
I analyze 181 equity carve-outs to determine whether the transactions are motivated by potential efficiency improvements or by an opportunity to sell overvalued equity. Carve-out operating performance peaks at issue, declining significantly thereafter. Parents sell a greater percentage of shares when subsequent performance is poor. A negative relation also exists between long-term excess returns and the percentage of shares sold. If subsequent performance is correlated with the degree to which parent managers believe carve-out subsidiaries are over- or undervalued, results imply that many carve-outs are conducted, not to improve efficiency, but to sell potentially overvalued equity. 2003 The Southern Finance Association and the Southwestern Finance Association.
Year of publication: |
2003
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Authors: | Powers, Eric A. |
Published in: |
Journal of Financial Research. - Southern Finance Association - SFA, ISSN 0270-2592. - Vol. 26.2003, 1, p. 31-50
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Publisher: |
Southern Finance Association - SFA Southwestern Finance Association - SWFA |
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