The Equity Carve-Out Decision
46 Pages Posted: 6 Apr 2004 Last revised: 20 Oct 2007
Date Written: July 31, 2005
Abstract
This paper examines a parent firm's decision to create a new publicly traded company from a subsidiary unit, using a hand-collected sample of 81 equity carve-outs and carve-out announcements in Germany between 1984 and 2002. The results show that carve-out transactions are used to provide external financing for the combined firm, aim at improving managerial incentives and raise parent firm value by curtailing the internal capital market, but do not signal undervaluation of parent firms. Transactions in Germany differ from the U.S. in longer waiting time to transaction, their rebalancing of previous investment rather than financing of future growth, the better financial condition of parent firms and consequently lower probability of being financially distressed, and the lower relevance of market timing.
Keywords: Equity carve-out, corporate restructuring, conglomerate
JEL Classification: G32, G34
Suggested Citation: Suggested Citation
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