Authors: Apostolos Dasilas, Stergios Leventis

Title: The short and long-term performance of European equity carve-outs

Abstract

In this paper we examine the valuation effects of equity carve-outs in Europe during the period 1998-2011. Both the short-term and long-term stock market reactions for parent firms and carve-out subsidiaries are gauged using the classical event study methodology. In addition, we analyse the operating performance of parent firms for two years subsequent to the equity carve-out transaction. We demonstrate that equity carve-outs yield significant abnormal returns on the announcement day for the shareholders of parent firms. However, a remarkable price reversal is detected in the aftermath of the carve-out transaction that lasts up to two years. Subsidiaries stemming from the restructuring transaction also experience an initial positive market reaction which then reverses to severe price losses within a few months after the first day of listing. These results reveal that equity carve-outs appear to be a sub-optimal corporate decision for parent companies to dispose of some of their businesses and seek alternative sources of finance.