The Pricing of Equity Carve-Outs

Alexandros P Prezas, Murat Tarimcilar and Gopala K Vasudevan

The Financial Review, 2000, vol. 35, issue 4, 123-37

Abstract: This article examines the pricing of stock for 251 equity carve-outs during the 1986-95 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, carve-outs exhibit significantly lower initial-day returns, but their buy-and-hold returns for six-month 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. Copyright 2000 by MIT Press.

Date: 2000
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