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Second-stage events and bondholder wealth


  • Thomas H. Thompson
  • Vince Apilado


Purpose - The purpose of this paper is to provide a comprehensive initial evaluation of the wealth transfer hypothesis as applied to the second-stage events and announcements that follow carve-outs during the period from 1983 to 2004. Design/methodology/approach - Using daily security prices, such combinations are shown to have multi-faceted wealth transfers and wealth creation. Findings - In contrast with the wealth losses found in previous studies, wealth increases are observed for parent stockholders and bondholders in the spin-off announcement and event phases for combination carve-outs and spin-offs. Also, the spin-off is the most prevalent second divestiture choice for parents with traded debt. Originality/value - This study makes several contributions to the literature. First, in contrast with recent wealth transfer studies that use monthly bond returns, daily stock and bond returns are used to examine the wealth effect for parent stockholders and bondholders during the announcement and ex-dates of second-stage events. Second, in contrast with previous studies that found a wealth transfer from bondholders to stockholders in the spin-off phase, statistically significant wealth retention was observed for bondholders and for stockholders at spin-off and other second event announcements. Third, the results reflect that increased collateral from the carve-out phase lessens the potential for bondholder wealth loss in the spin-off phase.

Suggested Citation

  • Thomas H. Thompson & Vince Apilado, 2010. "Second-stage events and bondholder wealth," Managerial Finance, Emerald Group Publishing, vol. 36(2), pages 103-121, January.
  • Handle: RePEc:eme:mfipps:v:36:y:2010:i:2:p:103-121

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    References listed on IDEAS

    1. Galai, Dan & Masulis, Ronald W., 1976. "The option pricing model and the risk factor of stock," Journal of Financial Economics, Elsevier, vol. 3(1-2), pages 53-81.
    2. 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.
    3. Mulherin, J. Harold & Boone, Audra L., 2000. "Comparing acquisitions and divestitures," Journal of Corporate Finance, Elsevier, vol. 6(2), pages 117-139, July.
    4. Mikkelson, Wayne H. & Partch, M. Megan, 1986. "Valuation effects of security offerings and the issuance process," Journal of Financial Economics, Elsevier, vol. 15(1-2), pages 31-60.
    5. Schipper, Katherine & Smith, Abbie, 1986. "A comparison of equity carve-outs and seasoned equity offerings : Share price effects and corporate restructuring," Journal of Financial Economics, Elsevier, vol. 15(1-2), pages 153-186.
    6. Myers, Stewart C., 1977. "Determinants of corporate borrowing," Journal of Financial Economics, Elsevier, vol. 5(2), pages 147-175, November.
    7. Jeffrey W. Allen & John J. McConnell, 1998. "Equity Carve-Outs and Managerial Discretion," Journal of Finance, American Finance Association, vol. 53(1), pages 163-186, February.
    8. 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.
    9. Amy Dittmar, 2004. "Capital Structure in Corporate Spin-Offs," The Journal of Business, University of Chicago Press, vol. 77(1), pages 9-44, January.
    10. Asquith, Paul & Mullins, David Jr., 1986. "Equity issues and offering dilution," Journal of Financial Economics, Elsevier, vol. 15(1-2), pages 61-89.
    11. Thompson, Thomas H. & Apilado, Vince, 2006. "Investment banker reputation and two-stage combination carve-outs and spin-offs," Journal of Banking & Finance, Elsevier, vol. 30(1), pages 85-110, January.
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    Divestment; Wealth; Bonds; Securities; Parent companies;


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