Thomas H. Thompson

Partial Price Adjustments and Equity Carve-Outs

We examine the extent to which market-adjusted ex date returns reflect public information for 271 equity carve-outs in 1988–2006. Although prior studies focus on ex post determinants of equity carve-out and initial public offering returns, our study is the first to explore ex ante predictors of equity carve-out returns. We use three primary variables: filing range adjustments, the percentage of the offering used to retire subsidiary debt or to pay dividends, and the CBOE Volatility Index (VXO) to predict initial returns. We show that 11–35% of the variation in market-adjusted equity carve-out returns can be predicted using public information known prior to the offer date.

An examination of the survivability of reverse stock splits

Purpose - – The purpose of this paper is to examine the survivability of 810 reverse splits during the 1995-2006 period and show that companies that undertake reverse stock splits often fail within a relatively short time following the split. Design/methodology/approach - – Applying both a logit model and an adapted version of the Hensler Findings - – The paper finds that the market reaction to the reverse split on the ex-date is an important predictor of the likelihood of survival and of survival time. The paper finds that the likelihood of survival also depends on firm size, pre-split firm returns, and the post-split share price level. The paper finds that post-split survival time also depends on firm size, pre-split operating performance as measured by return on assets, pre-split firm returns, leverage, and the post-split share price level. Practical implications - – The study may be of interest to investors considering investing in stocks that have undergone reverse splits. Originality/value - – The research sheds light on which reverse splitting firms are most likely to survive and for how long.

An examination of the long‐term performance of reacquired carve‐outs

Purpose - The purpose of this paper is to provide a comprehensive initial evaluation of divestiture gains for reacquired carve-out parent and subsidiary second event and three-year returns for the period 1980-2010. Design/methodology/approach - Using several variables, we contrast reacquired carve-out parent and subsidiary second event returns with those for acquired carve-outs. Similarly, we contrast carve-out parent three-year returns. Findings - We observe several differences between reacquired (RACO) and acquired (AQCO) carve-outs. Indicating less competition for RACO prices, RACOs have lower market capitalization on the day before reacquisition. Supporting a certification effect for Thermo Electron, parent three-year post reacquisition returns are positive versus negative returns for other RACO parents. Our multiple regression variables explain 27.53 percent of the subsidiary reacquisition announcement returns of 11.63 percent and explain 19.84 percent of the variation of parent three-year returns. Originality/value - This study makes several contributions to the literature. It is the first study to contrast the long-term results of reacquired carve-outs and their parents with those of acquired carve-outs and their parents. Also, Gleason

Ex ante variables and carve-out parent returns

Purpose - The purpose of this paper is to provide a comprehensive initial evaluation of the changing issuer objective and partial price adjustment hypotheses as applied to carve-out parent initial and three-year returns for the period 1988-2006. Design/methodology/approach - Using five primary variables: the percentage of the subsidiary retained by the parent, the ratio of offering size to parent market capitalization, filing range adjustments, the percentage of the offering used to retire subsidiary debt or to pay dividends, and the CBOE volatility index to predict initial and three-year returns, the paper shows that Findings - The paper shows that public information known prior to the offer date influences 7.52 percent of the variation in announcement, 5.57-38.31 percent of the variation in ex-date and 6 percent of the variation in three-year market-adjusted equity carve-out parent returns. Originality/value - This study makes several contributions to the literature. Although prior studies focus on

Exploring a market curiosity: an examination of the Super Bowl Indicator

Purpose The purpose of this paper is to provide a comprehensive initial evaluation of the Super Bowl Indicator (SBI) from 1966 to 2015. Design/methodology/approach The authors evaluate the predictive ability of the SBI over two different time periods on four stock market indexes. Also, the authors compare the SBI predictive ability with other alternative indicators based on Super Bowl results as well as that of the January barometer (JB). As a robustness check, the authors examine whether the JB can predict Super Bowl outcomes. The authors use Granger causality to reduce the threat of spurious correlation. Findings The SBI surpasses the competition in both time periods, but it is evident that its predictive powers have waned since 1989. The authors find that the pre-Super Bowl January performance of the New York Stock Exchange is an impressive predictor of whether a team from the original National Football Conference won the big game between 1967 and 1988. Also, for the 1989-2016 period, the authors observe that the JB is a significant predictor whether the pre-game favorite wins or loses. Originality/value This study makes several contributions to the literature. The authors examine the SBI against four market indexes (Dow Jones Industrial Average, Standard and Poor’s 500 Index, and NASDAQ) with raw and point spread-adjusted scores. Testing a corollary to the SBI, this study is the first to examine the influence of the JB (sometimes called the January effect) on Super Bowl results.

Second-stage events and bondholder wealth

Purpose - The purpose of this paper is to provide a comprehensive initial evaluation of the wealth transfer hypothesis as applied to the second-stage events and announcements that follow carve-outs during the period from 1983 to 2004. Design/methodology/approach - Using daily security prices, such combinations are shown to have multi-faceted wealth transfers and wealth creation. Findings - In contrast with the wealth losses found in previous studies, wealth increases are observed for parent stockholders and bondholders in the spin-off announcement and event phases for combination carve-outs and spin-offs. Also, the spin-off is the most prevalent second divestiture choice for parents with traded debt. Originality/value - This study makes several contributions to the literature. First, in contrast with recent wealth transfer studies that use monthly bond returns, daily stock and bond returns are used to examine the wealth effect for parent stockholders and bondholders during the announcement and ex-dates of second-stage events. Second, in contrast with previous studies that found a wealth transfer from bondholders to stockholders in the spin-off phase, statistically significant wealth retention was observed for bondholders and for stockholders at spin-off and other second event announcements. Third, the results reflect that increased collateral from the carve-out phase lessens the potential for bondholder wealth loss in the spin-off phase.