Title: The market response of equity carve-out announcements in Malaysian stock market

Authors: Ken Chin-Chong Lee

Addresses: Faculty of Business and Accountancy, INTI International University, Persiaran Perdana BBN, Putra Nilai, 71800 Nilai, Negeri Sembilan, Malaysia

Abstract: This study examines the influence of equity carve-out (ECO) announcements on the share prices of parent firms using a hand-collected sample of 64 ECO announcements made within the time period from year 2000 to year 2008. It is found that ECOs have a positive impact on parent firms| share prices around the announcement period. This suggests that investors in Malaysian stock market welcome ECOs as good news. The results of the entire sample of this study are generally consistent with other researchers| findings. However, using the subsamples grouped by the ultimate consequence of the proposed listing in the ECO announcements, the market responses of two subgroups are not the same. The cumulate average abnormal returns of a subsample, which consists of the parent firms that ultimately carved out their subsidiaries, are significant positive before the announcement and then decrease soon after the announcement date. On the other hand, the uptrend of the cumulative average abnormal returns of another subgroup, which consists of parent firms that failed to carve out their subsidiaries, continues for a longer period after the announcement date.

Keywords: equity carve-out announcements; ECO; event study; market model method; Malaysia; market response; Malaysian stock market; share prices; parent firms; subsidiaries.

DOI: 10.1504/IJBFMI.2010.036007

International Journal of Business Forecasting and Marketing Intelligence, 2010 Vol.1 No.3/4, pp.247 - 261

Available online: 12 Oct 2010 *

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