The Equity Carve-Out Decision

46 Pages Posted: 6 Apr 2004 Last revised: 20 Oct 2007

See all articles by Hannes F. Wagner

Hannes F. Wagner

Bocconi University - Department of Finance; Bocconi University - IGIER - Innocenzo Gasparini Institute for Economic Research; European Corporate Governance Institute (ECGI)

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

Wagner, Hannes F., The Equity Carve-Out Decision (July 31, 2005). Available at SSRN: https://ssrn.com/abstract=524723 or http://dx.doi.org/10.2139/ssrn.524723

Hannes F. Wagner (Contact Author)

Bocconi University - Department of Finance ( email )

Via Roentgen 1
Milano, MI 20136
Italy

HOME PAGE: http://mypage.unibocconi.eu/hanneswagner

Bocconi University - IGIER - Innocenzo Gasparini Institute for Economic Research ( email )

Via Roentgen 1
Milan, 20136
Italy

European Corporate Governance Institute (ECGI) ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

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