The valuation effects of equity carve-outs
In an examination of 136 equity carve-outs in Taiwan in 1994-2007 we first find significantly positive stock price reactions associated with the announcements, consistent with the global findings. We further examine the sources of wealth gains on the basis of the asymmetric information hypothesis (Nanda, 1991) and the divestiture gains hypothesis (Schipper and Smith, 1986) and find that the results lend more support to the latter than the former. Specifically, two ramifications of the divestiture gains hypothesis are supported: firms that divest unrelated business (refocusing strategy hypothesis) and use the proceeds to undertake new investments (the investment strategy hypothesis) draw favourable market appraisals.
Volume (Year): 18 (2011)
Issue (Month): 9 ()
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