Equity Carveouts, Agency Costs, and Firm Value [Paperback]

Lukas Junker shows that in contrast to the dominantly positive assessment, on the German capital market and on a long-term basis ECOs are associated with a deterioration of firm value. This can be mainly explained by a lack of independence of the subsidiary in the typical transaction.

Equity carveouts (ECOs) as an instrument of financing and reorganization have increased in popularity: In 1999/2000, more than 40% of German IPO volume is accounted for by equity carveouts. Prominent examples are the carveout of Infineon (Siemens) and of T-Online (Deutsche Telekom). However, activity has decreased since the boom year 2000, and in 2002 and 2003 not a single ECO has taken place. In 2004, the planned ECO of Hapag-Lloyd was cancelled, and Deutsche Telekom even bought back T-Online. Thus, in practice there is no clear verdict on ECOs as instruments of financing and reorganization. The academic literature has been occupied with the subject for 15 to 20 years, but with heterogeneous results: Some contributions lack stringent theoretical foundations, coupled with effective empirical analysis, others limit their scope to the short-term effect of ECOs. Consequently, the overall effect of ECOs on firm valuation still remains unclear. The present thesis by Lukas Junker attempts to answer exactly this question. It analyzes the effects of ECOs on firm valuation (holding company as well as subsidiary).Existing ECO researchTheoretical foundations: An agency model for the analysis of ECOsLevers determining the effect of ECOs on firm value: Focus and investment efficiency, information asymmetries and disclosure, incentive compensation, ownership concentrationEmpirical evidence: short-term and long-term effect of ECOs on firm valueConclusions and implications for research and practiceDr. Lukas Junker promovierte bei Prof. Dr. Malte Brettel am Lehrstuhl f?r Wirtschaftswissenschaften f?r Ingenieure und Naturwissenschaftler der Rheinisch-Westf?lischen Technischen HochschulsÌ