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The two stages of an equity carve‐out and the price response of parent and subsidiary stock
Author(s) -
Klein April,
Rosenfeld James,
Beranek William
Publication year - 1991
Publication title -
managerial and decision economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.288
H-Index - 51
eISSN - 1099-1468
pISSN - 0143-6570
DOI - 10.1002/mde.4090120606
Subject(s) - subsidiary , equity (law) , shareholder , monetary economics , stock price , business , tender offer , event study , share price , stock (firearms) , economics , financial economics , finance , stock exchange , corporate governance , mechanical engineering , paleontology , context (archaeology) , engineering , series (stratigraphy) , multinational corporation , political science , law , biology
This paper provides evidence that an equity carve‐out is usually the first stage of a two‐stage process either to dispose of parent interest in a subsidiary or eventually re‐acquire the subsidiary's publicly traded snares. Both the initial carve‐out announcement and subsequent sell‐off announcement yield, on average, significantly positive abnormal returns to parent shareholders. In contrast, the parent's price response to a re‐acquisition of subsidiary shares is, on average, insignificantly positive. Both sell‐off and re‐acquisition announcements have a strong positive impact on subsidiary share prices. These gains, however, are offset by the subsidiaries' below‐average return performance preceding the second event.