Securityholder Taxes and Corporate Restructurings

David C. Mauer and Wilbur G. Lewellen

Journal of Financial and Quantitative Analysis, 1990, vol. 25, issue 3, 341-360

Abstract: Previous studies have found that positive abnormal stock returns are associated with corporate spin-offs and divestitures. Using a simplified model of the process of investor tax trading, we show that an improvement in the value of the tax-timing option component of securities prices is a likely contributing factor to those abnormal returns. The analysis indicates that the same phenomenon also may be part of the explanation for the generally higher returns observed for spin-offs than for divestitures, both when leverage is and is not present in the restructuring transactions.

Date: 1990
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