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An Investigation of the Gains from Specialized Equity Claims

Author

Listed:
  • Audra Boone
  • David Haushalter
  • Wayne Mikkelson
Abstract
We investigate whether operating performance improves when a firm creates traded equity claims on a subsidiary without relinquishing control. We find that the change in a parent firm’s operating performance following an equity carve-out is negatively related to the fraction of subsidiary shares that the parent firm retains after a carve-out. Operating performance of parent firms improves only when the parent completely divests its ownership of the subsidiary. We also find no improvement in operating performance following the creation of tracking stock. We conclude that corporate restructuring without relinquishing control of assets does not enhance operating performance.

Suggested Citation

  • Audra Boone & David Haushalter & Wayne Mikkelson, 2003. "An Investigation of the Gains from Specialized Equity Claims," Financial Management, Financial Management Association, vol. 32(3), Fall.
    • Handle: RePEc:fma:fmanag:booneetal03
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    Citations

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    Cited by:

    1. Forcadell, Francisco Javier & Sanchez-Riofrio, Angelica & Guerras-Martín, Luis Ángel & Romero-Jordán, Desiderio, 2020. "Is the restructuring-performance relationship moderated by the economic cycle and the institutional environment for corporate governance?," Journal of Business Research, Elsevier, vol. 110(C), pages 397-407.
    2. Wei He & Tarun Mukherjee & Peihwang Wei, 2009. "Agency problems in tracking stock and minority carve-out decisions: Explaining the discrepancy in short- and long-term performances," Journal of Economics and Finance, Springer;Academy of Economics and Finance, vol. 33(1), pages 27-42, January.
    3. Anna N. Danielova, 2008. "Tracking Stock or Spin‐Off? Determinants of Choice," Financial Management, Financial Management Association International, vol. 37(1), pages 125-139, March.
    4. Chris Veld & Yulia V. Veld‐Merkoulova, 2008. "An Empirical Analysis of the Stockholder‐Bondholder Conflict in Corporate Spin‐Offs," Financial Management, Financial Management Association International, vol. 37(1), pages 103-124, March.
    5. Salim Chahine & Mohamad Zeidan, 2014. "Corporate governance and market performance of parent firms following equity carve-out announcements," Journal of Management & Governance, Springer;Accademia Italiana di Economia Aziendale (AIDEA), vol. 18(2), pages 471-503, May.
    6. Angélica María Sánchez-Riofrío & Luis Ángel Guerras-Martín & Francisco Javier Forcadell, 2015. "Business portfolio restructuring: a comprehensive bibliometric review," Scientometrics, Springer;Akadémiai Kiadó, vol. 102(3), pages 1921-1950, March.
    7. Otsubo, Minoru, 2009. "Gains from equity carve-outs and subsequent events," Journal of Business Research, Elsevier, vol. 62(11), pages 1207-1213, November.
    8. Desai, Chintal A. & Savickas, Robert, 2010. "On the causes of volatility effects of conglomerate breakups," Journal of Corporate Finance, Elsevier, vol. 16(4), pages 554-571, September.
    9. Lewis H. K. Tam, 2014. "The impacts of parent’s listing status on subsidiary’s financial constraint and cost of equity capital: the case of equity carve-outs," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 54(1), pages 275-299, March.
    10. Otsubo, Minoru, 2013. "Value creation from financing in equity carve-outs: Evidence from Japan," Journal of Economics and Business, Elsevier, vol. 68(C), pages 52-69.

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