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The Pricing of Equity Carve-Outs

Author

Listed:
  • Prezas, Alexandros P
  • Tarimcilar, Murat
  • Vasudevan, Gopala K

Abstract

This article examines the pricing of stock for 251 equity carve-outs during the 1986-95 period. We document a mean initial-day return of 5.83% and a mean one-week return of 5.43%. Among carve-outs, the initial underpricing is lower for issues represented by high prestige investment bankers and those that have a lower offer price. In comparison with 251 initial public offering (IPO) firms matched by size and book-to-market ratio of equity, carve-outs exhibit significantly lower initial-day returns, but their buy-and-hold returns for six-month and one-year periods are not significantly different from IPOs. The IPO firms have a three-year return of 28.82% which is significantly higher than the 21.07% return for the carve-out firms. Copyright 2000 by MIT Press.

Suggested Citation

  • Prezas, Alexandros P & Tarimcilar, Murat & Vasudevan, Gopala K, 2000. "The Pricing of Equity Carve-Outs," The Financial Review, Eastern Finance Association, vol. 35(4), pages 123-137, November.
    • Handle: RePEc:bla:finrev:v:35:y:2000:i:4:p:123-37
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    Cited by:

    1. Boulton, Thomas J. & Smart, Scott B. & Zutter, Chad J., 2020. "Worldwide short selling regulations and IPO underpricing," Journal of Corporate Finance, Elsevier, vol. 62(C).
    2. Klein, Christian & Schiereck, Dirk & Ton, Thai, 2018. "Die langfristige Wertentwicklung von Equity Carve-outs – Aktuelle empirische Evidenz für Westeuropa," Die Unternehmung - Swiss Journal of Business Research and Practice, Nomos Verlagsgesellschaft mbH & Co. KG, vol. 72(3), pages 197-211.
    3. Autore, Don M. & Boulton, Thomas J. & Smart, Scott B. & Zutter, Chad J., 2014. "The impact of institutional quality on initial public offerings," Journal of Economics and Business, Elsevier, vol. 73(C), pages 65-96.
    4. Boulton, Thomas J., 2022. "Economic policy uncertainty and international IPO underpricing," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 81(C).
    5. Kanagaretnam, Kiridaran & Lee, Jimmy & Lim, Chee Yeow & Lobo, Gerald J., 2022. "Trusting the stock market: Further evidence from IPOs around the world," Journal of Banking & Finance, Elsevier, vol. 142(C).
    6. Banerjee, Suman & Dai, Lili & Shrestha, Keshab, 2011. "Cross-country IPOs: What explains differences in underpricing?," Journal of Corporate Finance, Elsevier, vol. 17(5), pages 1289-1305.
    7. Dasilas, Apostolos & Leventis, Stergios, 2018. "The performance of European equity carve-outs," Journal of Financial Stability, Elsevier, vol. 34(C), pages 121-135.
    8. Boulton, Thomas J., 2023. "Property rights and access to equity capital in China," Global Finance Journal, Elsevier, vol. 55(C).
    9. Chahine, Salim & Mansi, Sattar & Mazboudi, Mohamad, 2015. "Media news and earnings management prior to equity offerings," Journal of Corporate Finance, Elsevier, vol. 35(C), pages 177-195.
    10. Baker, Edward D. & Boulton, Thomas J. & Braga-Alves, Marcus V. & Morey, Matthew R., 2021. "ESG government risk and international IPO underpricing," Journal of Corporate Finance, Elsevier, vol. 67(C).
    11. 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.
    12. Thomas H. Thompson, 2022. "Ex-date variables and DIPO parent returns," Journal of Economics and Finance, Springer;Academy of Economics and Finance, vol. 46(3), pages 553-565, July.

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