The authors are grateful for comments from the editor, Stephen Ferris, Mai Datta, Kose John, Robyn McLaughlin, Paul Spindt, and seminar participants at the 1999 FMA Annual Meeting. We would like to acknowledge a grant from Suffolk University towards the research project.
The Pricing of Equity Carve-Outs
Article first published online: 9 MAR 2005
Volume 35, Issue 4, pages 123–138, November 2000
How to Cite
Prezas, A. P., Tarimcilar, M. and Vasudevan, G. K. (2000), The Pricing of Equity Carve-Outs. Financial Review, 35: 123–138. doi: 10.1111/j.1540-6288.2000.tb01433.x
- Issue published online: 9 MAR 2005
- Article first published online: 9 MAR 2005
- initial public offerings;
- investment bankers;
This article examines the pricing of stock for 251 equity carve-outs during the 1986–1995 period. We document a mean initial-day return of 5.83% and a mean one-week return of 5.43%. Among carve-outs, the initial underpricing is lower for issues represented by high prestige investment bankers and those that have a lower offer price. In comparison with 251 initial public offering (IPO) firms matched by size and book-to-market ratio of equity, carveouts exhibit significantly lower initial-day returns, but their buy-and-hold returns for sixmonth and one-year periods are not significantly different from IPOs. The IPO firms have a three-year return of 28.82% which is significantly higher than the 21.07% return for the carve-out firms.