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An examination of the liquidity of equity carve-out parents

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  • Thomas H. Thompson

    (College of Business Administration)

Abstract

Although there have been other equity carve-out (ECO) studies, this is the first study to examine the liquidity of ECO parents. We investigate the traded parents of 234 equity carve-outs (ECO) during the period from 1993 to 2018. We examine several variables and their impact on three liquidity measures: bid-ask spread, turnover, and volatility. We confirm the Vijh (1994) liquidity measures: bid-ask spread, turnover, and volatility liquidity measures over seven periods: carve-out announcement, carve-out ex-date, five-day post carve-out period, lock-up date, second event announcement, second event ex-date, and the five-day post second event period. Also, we observe that consistent with Bali, Peng, Shen, and Tang (2014), liquidity can vary over time; liquidity measures peak at the lock-up date and the second event announcement date. In addition, we extend Cao, Field, and Hanka (2004), who excluded equity carve-outs and we observe that carve-out parent liquidity increases at the lock-up period. Moreover, we observe that the type of subsidiary second event can influence carve-out parent liquidity. The implications are that investors can economically benefit from ECO liquidity.

Suggested Citation

  • Thomas H. Thompson, 2021. "An examination of the liquidity of equity carve-out parents," Journal of Economics and Finance, Springer;Academy of Economics and Finance, vol. 45(3), pages 395-412, July.
    • Handle: RePEc:spr:jecfin:v:45:y:2021:i:3:d:10.1007_s12197-021-09546-8
    DOI: 10.1007/s12197-021-09546-8
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    References listed on IDEAS

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    More about this item

    Keywords

    Liquidity; Carve-outs; Spin-offs; Divestitures;
    All these keywords.

    JEL classification:

    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance

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