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Journal Article

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

Anand M. Vijh
The Journal of Business
Vol. 75, No. 1 (January 2002), pp. 153-190
DOI: 10.1086/323508
Stable URL: http://www.jstor.org/stable/10.1086/323508
Page Count: 38
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Abstract

Using a sample of 336 carveouts that occurred in the period 1980–97, 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.

Notes and References

This item contains 27 references.

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