The performance of European equity carve-outs

Abstract

In this paper we examine the valuation effects of equity carve-outs in Europe. We demonstrate that equity carve-out announcements yield significant abnormal returns for the shareholders of parent firms. This positive market reaction is stronger in countries that better protect minority shareholder rights. However, a remarkable price reversal is detected in the aftermath of a carve-out transaction that lasts up to two years. In contrast, parent-firm operating performance improves as long as the disposal of subsidiary assets is proven to be an optimal corporate decision. Subsidiaries stemming from the restructuring transaction also experience an initial positive market reaction which then reverses to severe price losses within a few months of the first day of listing.