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Deciphering the Motives for Equity Carve-Outs

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  • Eric A. Powers
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    Abstract

    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.

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    Bibliographic Info

    Article provided by Southern Finance Association & Southwestern Finance Association in its journal Journal of Financial Research.

    Volume (Year): 26 (2003)
    Issue (Month): 1 ()
    Pages: 31-50

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    Handle: RePEc:bla:jfnres:v:26:y:2003:i:1:p:31-50

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    Cited by:
    1. 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.
    2. Perotti, Enrico & Rossetto, Silvia, 2007. "Unlocking value: Equity carve outs as strategic real options," Journal of Corporate Finance, Elsevier, vol. 13(5), pages 771-792, December.
    3. Otsubo, Minoru, 2009. "Gains from equity carve-outs and subsequent events," Journal of Business Research, Elsevier, vol. 62(11), pages 1207-1213, November.

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