An Investigation of the Gains from Specialized Equity Claims

We investigate whether operating performance improves when a firm creates traded equity claims on a subsidiary without relinquishing control. We find that the change in a parent firm's operating performance following an equity carve-out is negatively related to the fraction of subsidiary shares that the parent firm retains after a carve-out. Operating performance of parent firms improves only when the parent completely divests its ownership of the subsidiary. We also find no improvement in operating performance following the creation of tracking stock. We conclude that corporate restructuring without relinquishing control of assets does not enhance operating performance.