IDEAS home Printed from
   My bibliography  Save this article

The Choice of Going Public: Spin-offs vs. Carve-outs


  • Roni Michaely
  • Wayne H. Shaw


This study analyzes how firms choose between a spin-off and an equity carve-out as a way to divest assets. Using a sample of 91 master limited partnerships that were issued to the public, we find that riskier, more leveraged, less profitable firms choose to divest through a spin-off. The spin-off firms are smaller and less profitable then the carve-out firms. This suggests that the choice is affected by a firm's access to the capital market: Greater scrutiny and more stringent disclosure are required in care-outs relative to spin-offs. We do not find support for the hypotheses that management attempts to leave undervalued assets in the hands of current shareholders or that parent organizations' need for cash are the driving motives behind the divestiture choice. Little, if any, support is found for operating efficiencies as a reason for these transactions. Both spin-off and the carve-out firms underperform the market by a wide margin. The spin-off parents experienced significantly poor performance, while carve-out parents' performance was commensurate with their control groups.

Suggested Citation

  • Roni Michaely & Wayne H. Shaw, 1995. "The Choice of Going Public: Spin-offs vs. Carve-outs," Financial Management, Financial Management Association, vol. 24(3), Fall.
  • Handle: RePEc:fma:fmanag:michaely95

    Download full text from publisher

    To our knowledge, this item is not available for download. To find whether it is available, there are three options:
    1. Check below whether another version of this item is available online.
    2. Check on the provider's web page whether it is in fact available.
    3. Perform a search for a similarly titled item that would be available.


    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.

    Cited by:

    1. Marco Pagano & Fabio Panetta & and Luigi Zingales, 1998. "Why Do Companies Go Public? An Empirical Analysis," Journal of Finance, American Finance Association, vol. 53(1), pages 27-64, February.
    2. Desai, Chintal A. & Klock, Mark S. & Mansi, Sattar A., 2011. "On the acquisition of equity carve-outs," Journal of Banking & Finance, Elsevier, vol. 35(12), pages 3432-3449.
    3. Desai, Chintal A. & Savickas, Robert, 2010. "On the causes of volatility effects of conglomerate breakups," Journal of Corporate Finance, Elsevier, vol. 16(4), pages 554-571, September.
    4. Chemmanur, Thomas J. & Liu, Mark H., 2011. "Institutional trading, information production, and the choice between spin-offs, carve-outs, and tracking stock issues," Journal of Corporate Finance, Elsevier, vol. 17(1), pages 62-82, February.
    5. Ying Lin & Kenneth Yung, 2014. "Earnings management and corporate spinoffs," Review of Quantitative Finance and Accounting, Springer, vol. 43(2), pages 275-300, August.
    6. repec:kap:jmgtgv:v:22:y:2018:i:1:d:10.1007_s10997-017-9384-6 is not listed on IDEAS
    7. Lucian Arye Bebchuk & Luigi Zingales, 1996. "Corporate Ownership Structures: Private versus Social Optimality," NBER Working Papers 5584, National Bureau of Economic Research, Inc.
    8. Salim Chahine & Mohamad Zeidan, 2014. "Corporate governance and market performance of parent firms following equity carve-out announcements," Journal of Management & Governance, Springer;Accademia Italiana di Economia Aziendale (AIDEA), vol. 18(2), pages 471-503, May.
    9. Dmitri Boreiko & Maurizio Murgia, 2013. "European spin-offs Origin, value creation, and long-term performance," BEMPS - Bozen Economics & Management Paper Series BEMPS05, Faculty of Economics and Management at the Free University of Bozen.
    10. Ciccotello, Conrad S. & Muscarella, Chris J., 2001. "Contracts between managers and investors: a study of master limited partnership agreements," Journal of Corporate Finance, Elsevier, vol. 7(1), pages 1-23, March.

    More about this item


    Access and download statistics


    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:fma:fmanag:michaely95. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Courtney Connors). General contact details of provider: .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.