Tracking Stock or Spin-Off? Determinants of Choice

Financial Management, Forthcoming

28 Pages Posted: 3 Oct 2007 Last revised: 21 Dec 2009

See all articles by Anna N. Danielova

Anna N. Danielova

McMaster University - Finance & Business Economics

Abstract

I examine the roles of valuable internal capital markets, cross-subsidization, and insider ownership as determinants of choice between tracking stock and spin-offs in corporate equity restructuring. I show that conglomerates are more likely to choose tracking stock if they want to obtain some of the benefits offered by a spin-off, without loosing the potential for valuable internal capital markets. My results suggest that the market rewards firms with valuable internal capital markets that opt for tracking stocks, and penalizes the possibility of consolidated tax treatments. The market also reacts more favorably to unanticipated tracking-stock announcements.

Suggested Citation

Danielova, Anna N., Tracking Stock or Spin-Off? Determinants of Choice. Financial Management, Forthcoming, Available at SSRN: https://ssrn.com/abstract=1018302

Anna N. Danielova (Contact Author)

McMaster University - Finance & Business Economics ( email )

School of Business
1280 Main St. W.
Hamilton, ON L8S 4M4
Canada

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