Abstract
We examine price behavior in the emerging Internet industry by comparing investor valuation of Internet subsidiary carve-outs with that of the parent. We provide examples of parent firms whose Internet carve-out holdings exceed the market value of the entire parent by a large magnitude and over an extended period of time. We reject alternative tax, liquidity, and agency cost hypotheses previously proposed as explanations of a related phenomenon, the closed-end fund discount. We conclude that investors, or at least an important clientele of investors, value direct Internet asset holdings more richly than indirect holdings via the parent.
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