| Summary: | 博士 === 國立政治大學 === 企業管理研究所 === 94 === 1.Ownership Restructuring Relationships
Equity Carveouts and Spin-offs were called “Ownership Restructuring Relationships”. Equity Carveouts are usually followed by spin-offs. Spin-offs are more often associated with controlled subsidiaries. In a spin-off, a company distributes on a pro rata basis all the shares it owns in a subsidiary to its own shareholders. Two separate public corporations with the same proportional equity ownership now exist where only one existed before.
Equity Carveouts means “ A company sells up to 20% of the stock of a segment to raise funds followed by a tax-free spin-off. Spin-offs are distinguished from equity carveouts, in which some of a subsidiariy’s shares are offered for sale to the general public, bringing an infusion of cash to the parent firm without loss of control.
In any cases, management may seek to split the company into small pieces through a series of restructuring techniques. Including initial equity carveouts and subsequent spin-offs.
2.Wants
Taiwan listed Companies have incurred on conflict between subsidiaries in recent years. They usually take the step of Restructuring ownership relationship to approach their strategy, we exploring the cause and consequence among financial strategy, corporate governance and performance. The purpose of this paper is to explore the decision whether can impact on ability of manager or not.
First, to develop a new path is main contribution in Corporate Governance.
Second, to enhance the diversified field referred as Governance.
Third, Which can increasing wealth of owner at the issue of spin-offs and carveouts in Taiwan.
Fourth, After enacted the decision, What effect are their needs and the relationship between strategy and performance?
3.Literature Review
(1)Restructure
Several studies have examined the market reaction to the announcement of carve-outs (Schipper and Smith, 1986) and spin-offs (Hite and Owers,1983;Miles and Rosenfeld,1983; and Schipper and Smith,1983) These studies demonstrate that the announcement of a corporate spin-off or carve-out is associated with positive stock price movements in the parents’ stock.
The continuity of ownership in a spin-off implies that any subsequent changes in value from the reorganization accure to the existing shareholders of the parent corporation. Galai and Masulis claim spin-offs may erode the position of the bondholders causing a wealth transfer from bondholders to stock holders while leaving the value of the firm unchanged. Schipper and Smith also contend that the creation of publicly-traded firms results in new information sources which enable shareholders to more closely monitor the activities of managers, thereby reducing agency costs and enhancing shareholder wealth.
The asset focus explanation has viewed spin-offs as improving the focus of a firm, thus serving to remedy the loss of focus inherent in a diversified conglomerate.
(2)Restructure and owners wealth
A significant positive stock price reaction was surrounding spin-off announcements. The source of the gains in spin-offs, however, is difficult to identify and validate. Authors have argued that spin-offs:
Mitigate an unwieldy organizational structure by increasing focus.
Enhance contracting efficiency
Reduce regulatory or tax constraints
Reduce information asymmetries regarding the operatons of parent firms
Are possible corrections of acquisition mistake.
Improve managers’ incentives to maximize shareholder wealth in spun-off firms.
Allen et al(1995)also document an inverse relation between the gains to spin-offs and losses associated with prior takeovers of those units by the parent firm. Krishnaswami and Subramaniam(1999) find that information symmetries in parent firms are positively related to the excess stock returns around spin-off announcements. While Daley, Methrotra, and Sivakumar(1997)report that focus-increasing spin-offs earn higher announcement-period excess stock returns relative to spin-offs that do not increase focus. Cusatis, Miles, and Woolridge(1993)find that the market for corporate control has historically played a major role in the wealth gains to shareholders of firms involved in spin-offs.
The sources of the increasing in shareholder wealth which accompanying the announcement of a corporate spin-off. However, are not apparent. Hite and Owers(1983) and Schipper ;and Smith(1983) document that shareholder gains are related to neither wealth transfer from other financial claimants nor to the beneficial resolution of inefficient legal to regulatory contractual relationships.
(3) Information Asymmetry and Restructuring
Practitioners and the popular press usually propose an information-related motivation for spin-offs. CEO of most firms involved in spin-offs claim that the spin-off improves the firm’s market value because investors are able to perceive value more clearly after the spin-off. As information asymmetry hypothesis that a spin-offs increasing value. because it mitigates the information asymmetry in the market about the profitability and operating efficiency of the different divisions of the firm.
Several studies have empirically analyzed the source of shareholder gains around spin-offs. We may be classified as follow: (i) transfer of wealth from bondholders to shareholders. (ii) tax and regulatory advantages, (iii)restructuring of incentive contracts synergies hypothesis has received broad empirical support.
As spin-offs transform a shingle firm into many firms that have separate stock market listings, they increase the number of traded securities and make the price system more imformative.
(4) Internal Capital Market
The relative efficiency of internal and external capital market transactions is a critical element in defining the boundaries of the firm. Mackie-Mason(1990) says that internal capital markets are an empirically important mechanism by which capital is allocated across and within lines of business.
Alchian(1969) and Williamson(1970) argue that internal capital markets are more efficient than external markets because corporate headquarters is likely to be better informed than external suppliers of capital about investment opportunities. Meyer, Milgrom and Roberts (1992), Wulf(1997), Rajan et al(2000) and Scharfstein and Stein(2000) argue that rent seeking by division al managers can distort the functioning of internal capital markets, inducing corporate headquarters to allocate excessive capital to divisions with poor investment opportunities where rent-seeking incentives are strongest. Shin and Stulz(1998) evidence that when capital is reallocated across divisions, it does not seem to go in any systematic way to the divisions with the better investment opportunities.
(5) Governance and Restructuring
While a well-functioning system of corporate governance and control should contribute to the development of competitive advantage, internal control practices may not always operate effectively. The restructuring of the U.S. economy that followed this century’s fourth merger wave can be seen as inefficiencies associated with firms’ pursuit of financial self-sufficiently and conglomerate diversification.
Having said this, the work on internal control is limited in two ways. First, there have been few studies that consider director attributes, as well as the identity and compensation of CEOs simultaneously. Most work considers each as a topic worthy of its own investigation. Of course, these CEO and director attributes all comprise interrelated aspects of internal corporate control. And second, While Walsh and Seward (1990) acknowledged that a voluntary corporate restructuring could be seen as an attribute of internal control. Relatively little empirical work has been done on the topic within a governance and control framework. Our goal is to examine the relationship between a voluntary corporate restructuring and the more traditional internal corporate control mechanisms identifies by Walsh and Seward (1990).
4. Research Design
(1)Hypothesis
H1: The Goal of Restructuring Ownership Relationship is positive related with enhancing Degree of Corporate Governance; also is positive related with reduce Earning Management.
H1-1: A predictable variable is reducing diversification which has positive related with the share-hold-ratio increasing in institutional investor.
H1-2: The more forecast error from analysts, the less do add-up share hold-ratio from institutional investor; also the more is earning management from managers.
H1-3: Earning quality increasing is positive related with institutional investor add-up their holds; also is positive related with manager decreasing their earning management.
H1-4: Capital Expenditure decreasing is positive related with institutional investor add-up their holds; also is positive related with manager decreasing their earning management.
H2: Restructuring Ownership Relationship can enforce the structure of subsidiaries’ governance, also loft the ability of top management.
H2-1: If Insider Trading Index is lower at the subsidiaries after restructuring, the relationship with reducing agency cost is positive.
H2-2: Board is positive related with reducing the agency cost.
H2-3: The more influence power index is, the less agency costs are at subsidiaries’ restructuring.
H3: Announcement is positive related with wealth effect.
H3-1: announcement has positive abnormal return during event window.
H3-2: Spin-off has negative accumulate abnormal return during announcement. Carveout have positive accumulate abnormal return during announcement.
H3-3: the long-term in wealth effect which after restructure is superior to before restructure.
H4: Among governance, restructuring and performance have positive relationship.
H5: the performance means after restructure is superior to before restructure.
(2)Event study
The original sample consisted of 101 firms parent companies had spun-off subsidiary common stock to their shareholders over the period 1990 to 2005, and either sample consisted of 79 firms parent companies had carved-out subsidiary common stock to outsiders.
The mean adjusted return approached was used to compute abnormal returns. Recent evidence by Masulis(1994) as well as the more sophisticated market models in detecting abnormal performance when it is present.
To determine the adjusted daily returns of a security, the average daily return over specified interval, the comparison period return(CPR), it taken as an estimate of the expected daily return for the period under study, the observaton period adjusted returns are then computed by subtracting the CPR from the daily return over the observation period.
The CPR for the current study is based upon the average daily return from day –210 through day –21, the observation period extends from day –10 through day +10 using the following formula:
a. Average standard abnormal return:ASR= 。
b. Accumulated standard abnormal return:
CASR= 。
(3) Logistical regress model
We will test the relationship between goal of restructuring and governance to use the method in logistical model. Because the binary variables can catch add or deduct from institutional investor. Institutional investor may be proxy variable of enforce structure of Corporate governance that is depended variable by us. In addition to proxy of governance, We select another depend variable which is transparency on finance to be a proxy variable of earning management in stead of agency cost. If hold-stock-ratio is adding means the structure is better in the wholly year. And if transparency-on-finance is deducting means the cost is saver in the wholly year.
Through binary variable to test the relationship is worse than multi-regression model, we only want to know the meaning whether restructuring of owner relationship is function of corporate governance to find the effect on financial decision. Suppose that the strong relationship is existed between restructuring and governance, hence, we will explore relationships among governance, restructuring and performance in advance.
(4) Simultaneous Equation model
If ability can impact on financial decision and producing effect indirectly on governance, how do governance and performance can impact on financial decision? There are many papers to discuss the efficient of internal capital market where were related with governance and performance from inference. The evidence-paper is scarcity and also non-suitable on Taiwan. We Seemingly see the consequence is well between variables, their relationship may be interact to display on cause and consequence.
5. Conclusion
(1) We get a strong evidence to support the goal can influence on governance. Institutional investors need the sign to adjust their stock and join the better governance.
(2) To approve the refocusing hypothesis those improve the performance and manager’s ability. Their purpose of taking the corporate restructure is not only owner wealth but also to modulate the internal resource on conglomerate.
(3) Spin-offs is difference from carve out on wealth effect from announcement period. But they also have the common effect is positive on announce day. Spin-offs have negative abnormal return prior to announcement and carve out have positive abnormal return through announce day. Our conclusion is different from west papers.
(4) Ownership structure have influence on performance, Suppose that highly controlled parent company get more inflow than lower controlled parent company, in the meaning of controlling shareholder or block holders will influence on performance and ability of manager through corporate restructure.
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