The Journal of Finance publishes leading research across all the major fields of finance. It is one of the most widely cited journals in academic finance, and in all of economics. Each of the six issues per year reaches over 8,000 academics, finance professionals, libraries, and government and financial institutions around the world. The journal is the official publication of The American Finance Association, the premier academic organization devoted to the study and promotion of knowledge about financial economics.
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Equity Carve‐Outs and Managerial Discretion
Published: 12/17/2002 | DOI: 10.1111/0022-1082.65022
Jeffrey W. Allen, John J. McConnell
This study proposes a managerial discretion hypothesis of equity carve‐outs in which managers value control over assets and are reluctant to carve out subsidiaries. Thus, managers undertake carve‐outs only when the firm is capital constrained. Consistent with this hypothesis, firms that carve out subsidiaries exhibit poor operating performance and high leverage prior to carve‐outs. Also consistent with this hypothesis, in carve‐outs wherein funds raised are used to pay down debt, the average excess stock return of + 6.63 percent is significantly greater than the average excess stock return of −0.01 percent for carve‐outs wherein funds are retained for investment purposes.
Corporate Equity Ownership, Strategic Alliances, and Product Market Relationships
Published: 12/17/2002 | DOI: 10.1111/0022-1082.00307
Jeffrey W. Allen, Gordon M. Phillips
This paper examines long‐term block ownership by corporations and performance changes in firms with corporate block owners. We also examine potential reasons for corporate ownership including benefits in product market relationships, alleviation of financing constraints, and board monitoring by corporate owners. We find the largest significant increases in targets' stock prices, investment, and operating profitability when ownership is combined with alliances, joint ventures, and other product market relationships between purchasing and target firms, especially in industries with high research and development. Our findings are consistent with the conclusion that block ownership by corporations has significant benefits in product market relationships.