Article2000

The Pricing of Equity Carve‐Outs

Alexandros P. Prezas · Murat Tarimcilar · Gopala K. Vasudevan

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Corporate Finance and Governance Financial Markets and Investment Strategies Financial Analysis and Corporate Governance

Abstract

Abstract This article examines the pricing of stock for 251 equity carve‐outs during the 1986–1995 period. We document a mean initial‐day return of 5.83% and a mean one‐week return of 5.43%. Among carve‐outs, the initial underpricing is lower for issues represented by high prestige investment bankers and those that have a lower offer price. In comparison with 251 initial public offering (IPO) firms matched by size and book‐to‐market ratio of equity, carveouts exhibit significantly lower initial‐day returns, but their buy‐and‐hold returns for sixmonth and one‐year periods are not significantly different from IPOs. The IPO firms have a three‐year return of 28.82% which is significantly higher than the 21.07% return for the carve‐out firms.

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References

1984Corporate financing and investment decisions when firms have information that investors do not have 1992The investment opportunity set and corporate financing, dividend, and compensation policies 1995The New Issues Puzzle 1991The Long‐Run Performance of initial Public Offerings 1995Size and Book-to-Market Factors in Earnings and Returns 1986Why new issues are underpriced 1997Detecting long-run abnormal stock returns: The empirical power and specification of test statistics 1990Initial Public Offerings and Underwriter Reputation

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2024Mandatory ESG disclosure, information asymmetry, and litigation risk: Evidence from initial public offerings 2020Worldwide short selling regulations and IPO underpricing 2007Unlocking value: Equity carve outs as strategic real options 2023Financial Literacy and IPO Underpricing 2004THE PRICING OF EQUITY CARVE‐OUTS DURING THE 1990s 2006Valuation and Performance of Reacquisitions Following Equity Carve‐Outs

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