Partial Price Adjustments and Equity Carve-Outs

Abstract

We examine the extent to which market-adjusted ex date returns reflect public information for 271 equity carve-outs in 1988–2006. Although prior studies focus on ex post determinants of equity carve-out and initial public offering returns, our study is the first to explore ex ante predictors of equity carve-out returns. We use three primary variables: filing range adjustments, the percentage of the offering used to retire subsidiary debt or to pay dividends, and the CBOE Volatility Index (VXO) to predict initial returns. We show that 11–35% of the variation in market-adjusted equity carve-out returns can be predicted using public information known prior to the offer date.