Short term market reactions to equity carve-outs of U.S. traded companies

Equity carve-outs have become one of the most important types of specialized equity claims used by corporations to refocus on their core activities. Because they consist of a public sale of a subsidiary, equity carve-outs allow the market to independently value not only the carved-out unit, but also the parent company after the transaction is announced. Thus, this study explores the short term effects of equity carve-outs on the distribution of the returns of the parent company’s common shares. An event study methodology with a sample of 92 announcements over the period from 199 5 to 2000 is implemented. Mean and mean-variance disturbances are tested under the null hypothesis of equity carve-out neutrality using event windows ranging from 1 to 5 trading days around the announcement day. Consistent with previous research, it is found that equity carve-outs entail short term average cumulative abnormal returns in the order of 1.66 to 2.48%.