Short-term price performance of European equity carve-outs

Abstract

This chapter extends existing literature analysing a company’s share price reaction to the announcement of an intended equity carve-out (ECO) in four ways: First, the unprecedented sample size (in German/European terms) of n=178, originating from 13 European countries in the 1984 to 2004 period, allows the examination of a series of variables used to explain the cross-section of abnormal returns for which results up to now have been either inconclusive or missing. Second, the share price reaction of a parent firm at various process-relevant points in time is analysed, reflecting the continuous information flow to the market. Third, an explicit distinction is made between “clean” and “contaminated” announcement dates. Fourth, the share price reaction of parent firms conducting an ECO at a later point in time to an ECO announcement by another parent firm is analysed.