The Motivation of Vertical Equity Carve-Outs

• Main Authors: Wu Pei Jhen, 吳佩真
• Other Authors: Hsu Chi Sheng
• Format: Others
• Language: zh-TW
• Published: 2014
• Online Access: http://ndltd.ncl.edu.tw/handle/00765246000594765281

碩士 === 東海大學 === 國際貿易學系 === 102 === A firm will expand its vertical boundaries if it can reduce transaction costs of negotiations with its suppliers or its downstream clients, enhance its incentive to make relationship-specific investments, or strengthen its anti-competitive strategies (such as foreclosures or collusions), and hence increase the value of the firm. On the other hand, the conglomerate with vertical boundaries may have to deal with the higher complexity of cross-industrial organization, and fail to focus on the productivity of each segment. In addition, because of the large size of the conglomerate, it may be easy to face the financial constraint and rely on external financing, which in turn cause it to adopt the vertical carve-outs. We use the Propensity Score Matching method to find parents’ rivals and subsidiaries’ rivals. We find that parent firms earn positive abnormal announcement-period returns, and parents’ rivals and subsidiaries’ rivals experience negative short-run abnormal returns. The results provide support for the efficiency rationale. In addition, we find that degrees of mispricing of parent firms are significantly and negatively related to the announcement-period abnormal returns, and degrees of mispricing of subsidiaries are significantly and positively associated with the announcement-period abnormal returns, which are inconsistent with the prediction of the asymmetric information hypothesis. Finally, we find that there exists a positive relationship between parents’ Tobin’s Qs and short-run abnormal returns, which implies that firms with growth opportunities become more focused after vertical equity carve-outs. In sum, the combined evidence provides support for the divestiture gains hypothesis as the main motivation for vertical equity carve-outs.