Ex-post stock return behaviour of corporate restructurings and corporate control

Purpose 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. Design/methodology/approach 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. Findings 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. Originality/value This is one of the few papers looking at the three corporate restructurings and their return skewness.

Internal Capital Markets And Equity Restructuring

Inefficient internal capital market is often blamed for conglomerate diversification discount. While the positive market reaction to spin-off announcements is in conformity with that claim, the abnormal market return on tracking stock announcements is certainly not. This paper investigates the possibility of a bright side for internal capital markets in conglomerates that track business units as a mean of equity restructuring. This paper finds no evidence of a diversification discount for firms with a tracking stock. Partial support on the presence of diversification discount is found for a pair-matched sample of spin-off firms. This paper also finds evidence on more efficient internal capital markets for the sample of tracking-stock firms. The results may suggest that the conglomerates choice between tracking business units or spin-off of business units depends on the efficient allocation of internally generated funds.