Date of Award

1993

Document Type

Dissertation

Degree Name

Doctor of Philosophy (PhD)

Department

Finance

First Advisor

Myron B. Slovin

Abstract

The purpose of this dissertation is to explore the motivation behind various restructuring choices within a securities issuance context. Previous theoretical models and empirical evidence suggest that three methods of restructuring--equity carve-outs, sell-offs, and spin-offs, on average, signal favorable information about parent firms. This has been interpreted as reflecting either enhanced potential for efficiency gains, positive asymmetric information about the value of industry assets, or changes in agency costs. This dissertation presents an alternative framework by relating restructuring announcements to the effects of security issuance. Empirical tests are formulated to determine if these announcements contain valuable private information about the value of a subsidiary by analyzing whether or not elements of this information apply to other firms involved in related activities. Rivals of the carved-out subsidiaries experience negative revaluation effects. This is consistent with the hypothesis that a motivation for equity carve-outs is management's belief that a subsidiary is likely to be overvalued by the market. Similar to equity carve-outs, the announcement of the intent to go public releases elements of industry-common information that causes downward revaluation of intra-industry rivals of the announcing firm. Rivals of spun-off subsidiaries increase in value around these announcements which suggests managers believe the subsidiary's asset value is greater than the proceeds that equity carve-out or sell-off transactions would produce. Although sell-off announcements do not generate significant intra-industry effects, there are significant positive share price reactions to rivals of firms undergoing general restructurings. This indicates that positive information is released by these announcements about the value of the core assets of the restructuring firm.

Pages

162

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