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

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  • Anand M. Vijh

    (University of Iowa)

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.

Suggested Citation

  • Anand M. Vijh, 2002. "The Positive Announcement-Period Returns of Equity Carveouts: Asymmetric Information or Divestiture Gains?," The Journal of Business, University of Chicago Press, vol. 75(1), pages 153-190, January.
    • Handle: RePEc:ucp:jnlbus:v:75:y:2002:i:1:p:153-190
    DOI: 10.1086/323508
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