Corporate Restructurings: A Comparison of Equity Carve-outs and Spin-offs

In this paper we examine divisive corporate restructurings in which a firm takes a subsidiary public. Using a sample of 64 spin-off and 76 carve-out firms during 1991–1997, we find firms carve-out subsidiaries with higher market demand. These subsidiaries are more frequently in related industries than spin-offs. The carve-out firms are also more likely to be cash constrained and have lower marginal tax rates, but are not likely to be considering financial reporting synergies when structuring the divestiture. These results provide evidence that factors impacting the divestiture choice related to Master Limited partnerships, as studied previously, differ when divesting a corporate subsidiary.