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Ex ante variables and carve‐out parent returns

Thomas H. Thompson (Department of Economics and Finance, College of Business Administration, Lamar University, Beaumont, Texas, USA)

Managerial Finance

ISSN: 0307-4358

Article publication date: 30 August 2011

Abstract

Purpose

The purpose of this paper is to provide a comprehensive initial evaluation of the changing issuer objective and partial price adjustment hypotheses as applied to carve‐out parent initial and three‐year returns for the period 1988‐2006.

Design/methodology/approach

Using five primary variables: the percentage of the subsidiary retained by the parent, the ratio of offering size to parent market capitalization, filing range adjustments, the percentage of the offering used to retire subsidiary debt or to pay dividends, and the CBOE volatility index to predict initial and three‐year returns, the paper shows that ex ante variables can predict carve‐out parent initial and three‐year returns.

Findings

The paper shows that public information known prior to the offer date influences 7.52 percent of the variation in announcement, 5.57‐38.31 percent of the variation in ex‐date and 6 percent of the variation in three‐year market‐adjusted equity carve‐out parent returns.

Originality/value

This study makes several contributions to the literature. Although prior studies focus on ex post determinants of equity carve‐out returns, this study is the first to explore ex ante predictors of equity carve‐out parent returns. The implications of these results are that publicly available information known prior to the carve‐out offering date can influence market‐adjusted initial and three‐year parent carve‐out returns and can explain 6‐17 percent of the variation.

Keywords

Citation

Thompson, T.H. (2011), "Ex ante variables and carve‐out parent returns", Managerial Finance, Vol. 37 No. 10, pp. 890-914. https://doi.org/10.1108/03074351111161574

Publisher

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Emerald Group Publishing Limited

Copyright © 2011, Emerald Group Publishing Limited