Corporate governance and market performance of parent firms following equity carve-out announcements

Salim Chahine () and Mohamad Zeidan ()

Journal of Management & Governance, 2014, vol. 18, issue 2, 503 pages

Abstract: Using the Gompers, Ishii, and Metrick corporate governance index on a sample of 158 parent firms, this study demonstrates that firms with a superior governance rating have a higher short-term market reaction to carve-out announcements relative to firms with an inferior governance rating. Although the data supports previous evidence regarding negative long-term market reaction that parent firms typically experience following equity carve-outs, the results show that well-governed firms marginally outperform others. The findings also confirm that the dynamic effects related to improvements in corporate governance positively affect the long-term market outcome of parent firms; this relation is more significant in well-governed parent firms. Finally, the study shows evidence that corporate governance helps mitigate the agency problems related to the financing hypothesis, which results in better short and long-term market reactions following carve-out announcements. Copyright Springer Science+Business Media New York 2014

Keywords: Equity carve-outs; Market reaction; Corporate governance; G24; G32; G34 (search for similar items in EconPapers)
Date: 2014
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Citations: View citations in EconPapers (4)

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DOI: 10.1007/s10997-012-9245-2

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