Information Effects of Spin-Offs, Equity Carve-Outs, and Targeted Stock Offerings
31 Pages Posted: 22 Nov 1997
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: Suggested Citation
Do you have a job opening that you would like to promote on SSRN?
Recommended Papers
-
Tobin's Q, Corporate Diversification and Firm Performance
By Larry H.p. Lang and René M. Stulz
-
The Cost of Diversity: The Diversification Discount and Inefficient Investment
By Raghuram G. Rajan, Henri Servaes, ...
-
The Cost of Diversity: The Diversification Discount and Inefficient Investment
By Raghuram G. Rajan, Henri Servaes, ...
-
Cash Flow and Investment: Evidence from Internal Capital Markets
-
The Dark Side of Internal Capital Markets: Divisional Rent-Seeking and Inefficient Investment
-
Internal Capital Markets and the Competition for Corporate Resources
-
Explaining the Diversification Discount
By José Manuel Campa and Simi Kedia
-
Explaining the Diversification Discount
By José Manuel Campa and Simi Kedia