Capital Structure in Corporate Carve-outs
A central question in corporate finance has been about the optimal balance between both debt and equity financing when trying to determine the optimal capital structure of a new or existing firm. In this thesis, I investigate how the capital structure of the parent and carve-out company evolve following the carve-out itself. This investigation is a direct extension of Dittmar's (2004) work and contributes to the literature on the choice of a carve-out or spin-off. This leverage choice may be influenced by the parent corporation's need for cash, either to finance growth opportunities, to distribute cash to shareholders, or to repay debt (Michaely & Shaw, 1995).
Using a sample of 102 subsidiaries that have completed a carve-out between the years of 1985 and 2001 , I find that carve-outs do not have higher debt levels than spinoffs as reported in Dittmar's (2004) study. I also find that the parent firms ' leverage does not decrease as predicted. Leverage actually increases during the three years following the carve-out. I have also found that cash constraints, collateral value, and the parent firms ' pre-debt level are positively related to leverage choice while the parent firms' precarve- out cash constraint is negatively correlated. However, there is no significance between leverage and firm size, growth opportunities, or profitability.
This item is only available in print in the UCF Libraries. If this is your thesis or dissertation, you can help us make it available online for use by researchers around the world by downloading and filling out the Internet Distribution Consent Agreement. You may also contact the project coordinator Kerri Bottorff for more information.
Bachelor of Science (B.S.)
College of Business Administration
Business Administration -- Dissertations, Academic; Dissertations, Academic -- Business Administration
Length of Campus-only Access
Honors in the Major Thesis
Tompkins, Lindsay, "Capital Structure in Corporate Carve-outs" (2006). HIM 1990-2015. 562.