| Author: | Allen, J. W. McConnell, J. J. |
| Title: | Equity carve-outs and managerial discretion. |
| Journal: | Journal of Finance
1998 : FEB, VOL. 53:1, p. 163-186 |
| Index terms: | EQUITY CAPITAL ASSETS STOCK MARKETS |
| Language: | eng |
| Abstract: | The study proposes a managerial discretion hypothesis of equity carve-outs in which managers value control over assets and are reluctant to carve out subsidiaries. Thus, managers undertake carve-outs only when the firm is capital constrained. Consistent with this hypothesis, firms that carve out subsidiaries exhibit poor operating performance and high leverage prior to carve-outs. Also consistent with this hypothesis, in carve-outs wherein funds raised are used to pay down debt, the average excess stock return of -0.01 percent for carve-outs wherein funds are retained for investment purposes. |
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