| Popis: |
Tracking stocks split a company’s operations into two (or more) equity claims, but allows them to remain as wholly owned segments of the parent. Like conventional common stocks, they legally represent an equity stake in the parent corporation. Despite that, they were designed to trade on the fundamentals of a particular business unit. They gained popularity in the 1990s, and were mostly gone by 2007. The announcement of their issuance created positive abnormal market returns, but the post-issuance performance had significant negative returns for the parent stock (-220.74%) and the tracking stock (-318.26%). Many firms opted to retire the structures, and this study focuses on the market reaction to their elimination. On average, the announcement to retire the structure resulted in a significant and positive excess return of 4% to the parent and 10% to the tracking stocks. The announcement excess returns are followed by a statistically significant 1.7% for the parent and 2.2% for the tracking stock on the retirement date. This is consistent with what transpires for carve-outs, which often also fail. We found substantial differences in the reaction of some tracking and parent stocks to retirement which suggests that the tracking stock successfully separates a firm into distinct economic entities and indicates that a tracking stock structure leads to conflicts of interest between tracking and parent shareholders, highlighting that the tracking stock structure may not be the best choice. |
