The Wealth Effects of Tracking Stock Restructurings

Abstract

We provide a comprehensive examination of the post-issue wealth effects of 29 completed tracking stock restructurings. We document that for the parent stock and for the combined firm, tracking stock restructurings lead to insignificant long-term excess returns. However, we find that shareholders of tracking stocks realize significant post-issue wealth losses. Unlike spinoffs and carveouts, announcements of tracking stock restructurings are preceded by negative one-year excess returns, and unlike the positive post-issue long-term excess returns to spinoff stocks and the insignificant long-term excess returns to carveout stocks, tracking stocks experience negative long-term excess returns.

Keywords: Tracking stock, corporate restructuring

JEL Classification: G12, G14, G24, G34