On the Publicity of Two‐Stage Spin‐Offs and Equity Carve‐Outs

31 Pages Posted: 8 Oct 2011

See all articles by Salim Chahine

Salim Chahine

American University of Beirut - Olayan School of Business; European Corporate Governance Institute (ECGI)

Marc Goergen

IE Business School, IE University; European Corporate Governance Institute (ECGI)

Date Written: November 2011

Abstract

We investigate the effect of pre‐offer publicity on ownership, pricing, and aftermarket performance for equity carve‐outs (ECOs) and two‐stage spin‐offs (COSOs). Contrary to ECOs, for COSOs the parent firm's shareholders end up with free shares in the subsidiary. As the value of large share blocks is likely to be negatively affected by the emergence of new blocks after the divestiture, we hypothesize that parent firms undertaking COSOs may conduct more pre‐offer publicity to attract more retail investors, keeping outside ownership diffuse and inflating aftermarket performance until the distribution of the free shares. We find empirical support for our hypotheses.

Keywords: two‐stage spin‐off, equity carve‐out, publicity, underpricing, trading conditions, G24, G32, G34

Suggested Citation

Chahine, Salim and Goergen, Marc, On the Publicity of Two‐Stage Spin‐Offs and Equity Carve‐Outs (November 2011). Financial Review, Vol. 46, Issue 4, pp. 671-701, 2011, Available at SSRN: https://ssrn.com/abstract=1940258 or http://dx.doi.org/10.1111/j.1540-6288.2011.00316.x

Salim Chahine (Contact Author)

American University of Beirut - Olayan School of Business ( email )

Bliss Street
Beirut 1107 2020
Lebanon
961-1-374-374 (Phone)

European Corporate Governance Institute (ECGI) ( email )

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

Marc Goergen

IE Business School, IE University ( email )

Finance Department
Maria de Molina, 12
Madrid, 28006
Spain

HOME PAGE: http://www.ie.edu/business-school/faculty-and-research/faculty/marc-goergen/

European Corporate Governance Institute (ECGI) ( email )

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

HOME PAGE: http://www.ecgi.org

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