The Positive Announcement-Period Returns of Equity Carveouts: Asymmetric Information or Divestiture Gains?

Anand M. Vijh
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Anand M. Vijh: University of Iowa

The Journal of Business, 2002, vol. 75, issue 1, 153-190

Abstract: Using a sample of 336 carveouts that occurred in the period 198097, this article shows that the announcement-period returns increase with the ratio of subsidiary to nonsubsidiary assets. This finding contradicts the asymmetric information model proposed by Nanda. Additional tests relate the returns to the following divestiture-based explanations proposed by Schipper and Smith and others: refocusing of the parent and subsidiary operations, financing of new and existing projects, reducing the complexity of stock valuation, and enabling an eventual spinoff or third-party acquisition. The combined evidence rejects the asymmetric information hypothesis and supports the divestiture gains hypothesis of carveouts.

Date: 2002
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Persistent link: https://EconPapers.repec.org/RePEc:ucp:jnlbus:v:75:y:2002:i:1:p:153-190

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