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The Pricing of Equity Carve-Outs

Author

Listed:
  • Prezas, Alexandros P
  • Tarimcilar, Murat
  • Vasudevan, Gopala K

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.

Suggested Citation

  • Prezas, Alexandros P & Tarimcilar, Murat & Vasudevan, Gopala K, 2000. "The Pricing of Equity Carve-Outs," The Financial Review, Eastern Finance Association, vol. 35(4), pages 123-137, November.
    • Handle: RePEc:bla:finrev:v:35:y:2000:i:4:p:123-37
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    Cited by:

    1. Dasilas, Apostolos & Leventis, Stergios, 2018. "The performance of European equity carve-outs," Journal of Financial Stability, Elsevier, vol. 34(C), pages 121-135.
    2. Klein, Christian & Schiereck, Dirk & Ton, Thai, 2018. "Die langfristige Wertentwicklung von Equity Carve-outs – Aktuelle empirische Evidenz für Westeuropa," Die Unternehmung - Swiss Journal of Business Research and Practice, Nomos Verlagsgesellschaft mbH & Co. KG, vol. 72(3), pages 197-211.
    3. Baker, Edward D. & Boulton, Thomas J. & Braga-Alves, Marcus V. & Morey, Matthew R., 2021. "ESG government risk and international IPO underpricing," Journal of Corporate Finance, Elsevier, vol. 67(C).
    4. Boulton, Thomas J., 2023. "Property rights and access to equity capital in China," Global Finance Journal, Elsevier, vol. 55(C).
    5. Autore, Don M. & Boulton, Thomas J. & Smart, Scott B. & Zutter, Chad J., 2014. "The impact of institutional quality on initial public offerings," Journal of Economics and Business, Elsevier, vol. 73(C), pages 65-96.
    6. Chahine, Salim & Mansi, Sattar & Mazboudi, Mohamad, 2015. "Media news and earnings management prior to equity offerings," Journal of Corporate Finance, Elsevier, vol. 35(C), pages 177-195.
    7. Boulton, Thomas J., 2022. "Economic policy uncertainty and international IPO underpricing," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 81(C).
    8. Boulton, Thomas J. & Smart, Scott B. & Zutter, Chad J., 2020. "Worldwide short selling regulations and IPO underpricing," Journal of Corporate Finance, Elsevier, vol. 62(C).
    9. Otsubo, Minoru, 2013. "Value creation from financing in equity carve-outs: Evidence from Japan," Journal of Economics and Business, Elsevier, vol. 68(C), pages 52-69.
    10. Kanagaretnam, Kiridaran & Lee, Jimmy & Lim, Chee Yeow & Lobo, Gerald J., 2022. "Trusting the stock market: Further evidence from IPOs around the world," Journal of Banking & Finance, Elsevier, vol. 142(C).
    11. Banerjee, Suman & Dai, Lili & Shrestha, Keshab, 2011. "Cross-country IPOs: What explains differences in underpricing?," Journal of Corporate Finance, Elsevier, vol. 17(5), pages 1289-1305.
    12. Thomas H. Thompson, 2022. "Ex-date variables and DIPO parent returns," Journal of Economics and Finance, Springer;Academy of Economics and Finance, vol. 46(3), pages 553-565, July.

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