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Equity Restructuring via Tracking Stocks: Is there any Value Added?

In: Advances In Quantitative Analysis Of Finance And Accounting

Author

Listed:
  • Beni Lauterbach

    (School of Business Administration, Bar-Ilan University, Ramat Gan 52900, Israel)

  • Joseph Vu

    (Department of Finance, Depaul University, 1 E. Jackson Blvd., Chicago, IL 60604-2287, USA)

Abstract

In a tracking stock restructuring, the parent company issues a stock that tracks the earning performance of one of its divisions or subsidiaries. We study the effect of such an equity restructuring on the parent stock value. Parent stock response is insignificant in the short and long run. Thus, unlike equity carve-outs and spin-offs, issuing tracking stock does not create value, on average. This explains the complete cessation of tracking stock issuing since 2000. Our evidence also suggests that parent firms may have exploited tracking stock shareholders, which further explains the disappearance of tracking stocks.

Suggested Citation

  • Beni Lauterbach & Joseph Vu, 2007. "Equity Restructuring via Tracking Stocks: Is there any Value Added?," World Scientific Book Chapters, in: Cheng-Few Lee (ed.), Advances In Quantitative Analysis Of Finance And Accounting, chapter 3, pages 51-62, World Scientific Publishing Co. Pte. Ltd..
    • Handle: RePEc:wsi:wschap:9789812772213_0003
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