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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.

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.

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.

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.

The purpose of this paper is to provide a comprehensive initial evaluation of divestiture gains for reacquired carve‐out parent and subsidiary second event and three‐year returns for the period 1980‐2010.

Using several variables, we contrast reacquired carve‐out parent and subsidiary second event returns with those for acquired carve‐outs. Similarly, we contrast carve‐out parent three‐year returns.

We observe several differences between reacquired (RACO) and acquired (AQCO) carve‐outs. Indicating less competition for RACO prices, RACOs have lower market capitalization on the day before reacquisition. Supporting a certification effect for Thermo Electron, parent three‐year post reacquisition returns are positive versus negative returns for other RACO parents. Our multiple regression variables explain 27.53 percent of the subsidiary reacquisition announcement returns of 11.63 percent and explain 19.84 percent of the variation of parent three‐year returns.

This study makes several contributions to the literature. It is the first study to contrast the long‐term results of reacquired carve‐outs and their parents with those of acquired carve‐outs and their parents. Also, Gleason et al.’s study of reacquired carve‐outs has been extended in several ways. First, parent company three‐year returns after the reacquisition was examined. Next, returns for reacquired carve‐outs were contrasted with acquired carve‐outs. Updating Allen's study, it is reported that, except for one subsidiary acquired by a third party, all subsidiaries were reacquired by Thermo Electron.

The purpose of this paper is to provide a comprehensive initial evaluation of the wealth transfer hypothesis as applied to the second‐stage events and announcements that follow carve‐outs during the period from 1983 to 2004.

Using daily security prices, such combinations are shown to have multi‐faceted wealth transfers and wealth creation.

In contrast with the wealth losses found in previous studies, wealth increases are observed for parent stockholders and bondholders in the spin‐off announcement and event phases for combination carve‐outs and spin‐offs. Also, the spin‐off is the most prevalent second divestiture choice for parents with traded debt.

This study makes several contributions to the literature. First, in contrast with recent wealth transfer studies that use monthly bond returns, daily stock and bond returns are used to examine the wealth effect for parent stockholders and bondholders during the announcement and ex‐dates of second‐stage events. Second, in contrast with previous studies that found a wealth transfer from bondholders to stockholders in the spin‐off phase, statistically significant wealth retention was observed for bondholders and for stockholders at spin‐off and other second event announcements. Third, the results reflect that increased collateral from the carve‐out phase lessens the potential for bondholder wealth loss in the spin‐off phase.

This paper aims to investigate the correlation between stock returns of the parent and newly created entity and the degree of return skewness in parents in the three different corporate restructurings.

Using a sample of spin-offs, equity carve-outs and tracking stocks, ordinary least squares regression is used to test the relationship between stock return correlation as well as stock return skewness and the type of corporate restructurings.

Tracking stock offering has the largest correlation in stock returns, whereas spin-off has the least correlation in stock returns. Also, the result from the skewness test is not consistent with the hypothesis that the stock returns skewness is positively related to the degree of ownership and control.

This is one of the few papers looking at the three corporate restructurings and their return skewness.

This paper aims to examine the prevalence of informed trading around corporate spinoffs and the relation between firm opacity and informed trading using option market data.

The author investigates the prevalence of informed trading by examining the relationship between abnormal stock returns associated with spinoffs and the volatility spread/volatility skewness of options prior to the spinoffs. Furthermore, the author examines how opacity and organizational complexity prior to the spinoffs affect informed trading.

The study shows that option volatility spread and volatility skewness for the five days prior to the spinoffs can predict the abnormal stock returns on the spinoff announcement days, suggesting that there is informed trading in the options market prior to spinoffs. The study shows that informed trading is more prevalent for firms that are more opaque prior to the spinoff. Furthermore, informed trading decreases after spinoffs.

To the best of knowledge, this is the first empirical research that examines the prevalence of informed trading around spinoffs by using options volatility spread/skewness and the relation between firm opacity and informed options trading.

The purpose of this paper is to examine whether communicating a corporate parent brand's heritage in the form of the name, slogan or other reference helps a corporate spin‐off increase its post‐divestiture stock market value.

The authors collected stock market valuation data on spin‐offs in the USA during the period 1992‐2004 both on the spin‐off date and a year from that date and compared the change in the spin‐off's stock market valuation to a change in a broad stock market index, the S&P 500.

It was found that a spin‐off did not outperform a broad market index over the one year after divestiture. Second, spin‐offs that relied on parent brand heritage did not outperform those that did so. Third, using a parent brand's name, a more direct reference to parent brand heritage, did not result in higher spin‐off valuation than using other parent identifiers such as tag lines or slogans.

A major implication of the findings is that shareholders and investors may not be considering a corporate parent's brand equity in evaluating the investment value of a spin‐off, in stark contrast to repeated findings of the importance of a parent brand's equity in a consumer's evaluation of a brand extension.

The results suggest that corporate managers need not be concerned with communicating parent brand associations to investors at the time of a spin‐off, at least for the purpose of boosting its future stock valuation.

This paper analyses the importance of corporate brand equity in investors' evaluation of spin‐offs, the first extension of traditional branding research into the domain of investors and the use of effects like stock valuation.

The purpose of this paper is to examine two different choices of corporate divestiture for US firms: selling off assets to public firms or issuing stocks in equity carve-outs. The authors identify industry-related, firm-specific, deal-related and market-timing factors that influence the choice between the two methods of divestiture.

The authors use the univariate tests, logistic regressions and buy-and-hold excess return computations to identify industry-related, firm-specific, deal-related and market-timing factors that influence the choice between the two methods of divestiture.

The results show that industry concentration, relative “hotness” of the equity carve-out market, market values of divested units and firm’s growth opportunities are all positively related to the probability of an equity carve-out selection. In contrast, firms in financial service industry, firms that divest smaller units and firms with higher asymmetric information mainly choose to divest assets through asset sell-offs. The findings also indicate that firms with higher leverage and/or higher cash flow constraint show a stronger likelihood for choosing either the equity carve-out option or asset sell-off with cash payment over asset sell-off with stock payment. In the long run, firms that sell-off their assets experienced better performance relative to firms that choose to carve-out.

The authors recognize several limitations of this study. First, the findings use the data collected in the US market. These findings may not be necessarily true to non-US firms. Therefore, one possible extension of this paper is to further examine the determinants that drive the methods of divestiture for non-US firms. Second, the authors have not examined the association between the choices of divestiture and the subsequent long-term operating performance of the firms. This could be another interesting direction for research in the future.

The findings have some implication for the divestiture literature by providing a set of determinants which play important roles on firms’ choice between an asset sell-off and an equity carve-out. The findings also have important implications for a potential acquirer who is interested in buying a firm’s subsidiary. Specifically, by analyzing the aforementioned influencing factors, the acquirer might foresee the possibility of a carve-out method and plan its bidding offer accordingly. From investors’ perspective, knowing which factors affect firms’ divesting methods and their subsequent long-run stock performance is undoubtedly beneficial to their investment strategies.

Prior research has attempted to address the reasons why firms divest or the outcomes of those actions. This paper focuses on the factors that influence the choice of sell-off versus carve-out once the decision to divest has been made. In addition, the authors look at a wide range of factors including industry-related, firm-specific, deal-related and market timing.

In the last decade, involvement of foreign‐based firms in the United States through setting up of joint ventures and subsidiary operations has increased tremendously. Many of these subsidiaries have securities traded in the local market but have the added flexibility of raising capital outside the United States through their foreign‐based parent organisations. This paper focuses on the capital acquisition process of these foreign‐based firms in the U.S. capital markets. The optimal selection of the format of the capital financing depends on the ultimate impact on shareholders' wealth. The decision is non‐trivial since there is substantial evidence to suggest that the choice and method of capital acquisition process convey new information to investors and therefore affect stock prices. As part of this process, it is important to understand the market reaction to announcements of public issues of various securities offerings.

Groupon, an online coupon company, was one of many companies that considered an initial public offering (IPO) during what might be a second technology/internet/social media IPO boom in 2011. Some companies chose to postpone their IPOs, while others took advantage of the media attention focussed on technology companies, and in particular, social media firms. Should investors hop on the tech IPO bandwagon, or hold off to better evaluate the long-term prospects of tech companies, and in particular social media companies? Would the valuation of Groupon justify an investment in IPO shares?

The case was researched from secondary sources, using Groupon's IPO filing information, news articles about the IPO and industry research sources, such as IBIS World.

This case is appropriate for an advanced undergraduate or MBA corporate finance or investment elective. Most introductory finance classes do not have the time to cover later chapters in a finance textbook, where information about IPOs is generally found. It could also be used at the end of a core finance course, where the instructor wanted to introduce this topic through a case study of a hard-to-value internet-based company to illustrate the difficulties in setting IPO prices. The case could also be used in an equity analysis class, an entrepreneurial finance class or an investment class, to spur discussion about valuing an internet company and choosing appropriate investments for pension fund investing. This case could also be used in a strategy class, focussing on the five forces question, and eliminating the valuation question.

There is a great deal of literature about IPOs and their long-term performance. An excellent source is Jay R. Ritter's research, http://bear.warrington.ufl.edu/ritter, which has a longer time period and more data than could be contained in this case. IPO puzzles include persistent undervaluing of IPOs; in other words, the offer price is lower than, and sometimes substantially lower than, the first day close price. A second issue is the generally poorer long-run performance of companies after their IPO when compared to similar firms that did not do an IPO.

Corporate control is assumed to rest in management's hands in firms with widely dispersed share ownership, but ownership of a relatively small block of shares may be sufficient to give the blockholder at least some measure of control or influence. Although the influence of individuals or institutions holding large minority positions is generally believed to benefit all shareholders through improved monitoring of management, one corporation may be motivated to acquire a sizeable minority position in another to achieve the benefits of merger without incurring the costs of a complete takeover. Given this motivation, the interests of the corporate minority shareholder may differ considerably from the interests of other shareholders.