Vertical divestitures through equity carve-outs and spin-offs: A product markets perspective

Bharat A. Jain, Omesh Kini and Jaideep Shenoy

Journal of Financial Economics, 2011, vol. 100, issue 3, 594-615

Abstract: Using a product markets perspective to investigate the decision to vertically disintegrate, we find that vertical divestitures are more likely in response to positive industry demand shocks, favorable industry financing conditions, and lower parent firm relative productivity and are less likely when the potential for contracting problems is high. Conditional on vertical divestitures, equity carve-outs are more likely in environments in which relationship-specific investments are more prevalent and when the need for external funds is high, while spin-offs are more likely in larger industries and in industries that experience positive demand shocks. Our examinations of announcement-period wealth effects and changes in operating performance indicate that vertical divestitures are motivated by efficiency considerations.

Keywords: Vertical; divestitures; Equity; carve-outs; Spin-offs; Product; markets (search for similar items in EconPapers)
Date: 2011
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (10)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0304-405X(11)00014-6
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:jfinec:v:100:y:2011:i:3:p:594-615

Access Statistics for this article

Journal of Financial Economics is currently edited by G. William Schwert

More articles in Journal of Financial Economics from Elsevier
Bibliographic data for series maintained by Catherine Liu ().