The Market Performance of Tracking Stocks

43 Pages Posted: 27 Jun 2000

See all articles by Anand M. Vijh

Anand M. Vijh

University of Iowa - Department of Finance

Matthew T. Billett

Indiana University - Kelley School of Business - Department of Finance

Date Written: February 2001

Abstract

Tracking stocks have been a popular form of equity restructuring in recent years. AT&T, Disney, General Motors, Sprint, US West, and many others have issued tracking stocks. While the positive announcement returns of tracking stocks are well documented, an examination of their post-issue market performance is lacking. This paper examines the post-issue returns and the subsequent restructuring events through December 2000 by using a comprehensive sample of tracking stocks. We document three key results. First, we find that tracking stocks earn significantly negative buy-and-hold excess returns during a three-year period following the issue date. We also find significantly negative returns surrounding the earnings announcements during this period. This evidence contrasts with the post-issue returns of spinoffs, which are known to be positive, and of carveouts, which are known to be insignificant. Second, contrary to a common justification given to adopt tracking stocks, we find that they do not increase the transparency of firm earnings. Third, we find large positive announcement-period returns to events resulting in the elimination of tracking stock structure.

JEL Classification: G32, G34

Suggested Citation

Vijh, Anand M. and Billett, Matthew T., The Market Performance of Tracking Stocks (February 2001). Available at SSRN: https://ssrn.com/abstract=229549 or http://dx.doi.org/10.2139/ssrn.229549

Anand M. Vijh

University of Iowa - Department of Finance ( email )

Iowa City, IA 52242-1000
United States
319-335-0921 (Phone)
319-335-3609 (Fax)

Matthew T. Billett (Contact Author)

Indiana University - Kelley School of Business - Department of Finance ( email )

1309 E. 10th St.
Bloomington, IN 47405
United States
812-855-3366 (Phone)

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