Information Effects of Spin-Offs, Equity Carve-Outs, and Targeted Stock Offerings

31 Pages Posted: 22 Nov 1997

See all articles by Stuart C. Gilson

Stuart C. Gilson

Harvard Business School - Finance Unit

Paul M. Healy

Harvard Business School; National Bureau of Economic Research (NBER)

Christopher F. Noe

Massachusetts Institute of Technology - Sloan School of Management

Krishna Palepu

Harvard University - Harvard Business School; Harvard University - David Rockefeller Center for Latin American Research; Harvard Business Review; NBER; International Academy of Management

Date Written: June 1998

Abstract

This paper investigates whether a spin-off, equity carve-out, or targeted stock offering results in making the operating performance of a firm's business segments more transparent. Using a sample of 146 spin-offs, equity carve-outs, and targeted stock offerings between 1990-1995, we document significant decreases in analyst earnings forecast errors as well as divergence among individual analyst earnings forecasts following these transactions. Moreover, we find that the levels of analyst and brokerage house coverage increase significantly following these transactions. Tracking the identity of individual analysts, we find that there is substantial analyst turnover around the sample deals, and the decrease in analyst earnings forecast errors following the sample deals is greatest when firms are able to attract new analysts. Taken together, these findings suggest that firms experience improvements in the quality of analyst coverage around spin-offs, equity carve-outs, and targeted stock offerings, and these improvements are at least partially driven by changes in the composition of analyst coverage.

See also the related papers "Valuation of Bankrupt Firms" by Stuart Gilson, Edith Hotchkiss, and Richard Ruback; and "Junk Bonds, Bank Debt, and Financing Corporate Growth" by Stuart Gilson and Jerold Warner

JEL Classification: M41, G34

Suggested Citation

Gilson, Stuart C. and Healy, Paul M. and Noe, Christopher F. and Palepu, Krishna, Information Effects of Spin-Offs, Equity Carve-Outs, and Targeted Stock Offerings (June 1998). Available at SSRN: https://ssrn.com/abstract=42904 or http://dx.doi.org/10.2139/ssrn.42904

Stuart C. Gilson (Contact Author)

Harvard Business School - Finance Unit ( email )

Boston, MA 02163
United States
(617) 495-6243 (Phone)
(617) 496-8443 (Fax)

Paul M. Healy

Harvard Business School ( email )

Soldiers Field
Boston, MA 02163
United States
617-495-1283 (Phone)
617-496-7387 (Fax)

National Bureau of Economic Research (NBER)

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Christopher F. Noe

Massachusetts Institute of Technology - Sloan School of Management ( email )

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United States

Krishna Palepu

Harvard University - Harvard Business School ( email )

Soldiers Field Road
Morgan 270C
Boston, MA 02163
United States
617-495-6759 (Phone)
617-496-7363 (Fax)

HOME PAGE: http://drfd.hbs.edu/fit/public/facultyInfo.do?facInfo=pub&facId=6527

Harvard University - David Rockefeller Center for Latin American Research ( email )

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Cambridge, MA 02138
United States

HOME PAGE: http://www.drclas.harvard.edu/faculty/directory/professors/view/150

Harvard Business Review ( email )

Boston, MA
United States

HOME PAGE: http://hbr.org/authors/palepu

NBER ( email )

1050 Massachusetts Avenue
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HOME PAGE: http://www.nber.org/people/krishna_palepu

International Academy of Management ( email )

Avenida Pearson 21
Barcelona, 08034
Spain

HOME PAGE: http://theiam.ws/?person=palepu-krishna

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