Universal Banks, Corporate Control, and Equity Carve-Outs in Germany
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Universal Banks, Corporate Control, and Equity Carve-Outs in Germany
Credit and Capital Markets – Kredit und Kapital, Vol. 41 (2008), Iss. 4 : pp. 557–587
3 Citations (CrossRef)
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Prof. Dr. Ralf Elsas, Ludwig-Maximilians-Universität München, Institut für Finance und Banking, Ludwigstraße 28, D-80539 München.
Yvonne Löffler, Humboldt-Universität zu Berlin, Unter den Linden 6, D-10099 Berlin.
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Abstract
Universal Banks, Corporate Control, and Equity Carve-Outs in Germany
This paper analyzes value effects of changes in the governance structure of German firms due to equity carve-outs.
Our main conjecture is that the degree of pre-event corporate control affects market reactions to the announcement of carve-outs. We test two contradictory implications. If less control of management leads to less efficiently managed firms, in particular these firms will benefit the most from a change in the governance structure. On the other hand, if tight control of management ensures a more efficient use of the carve-out proceeds, firms more subject to corporate control will have higher abnormal returns.
Our evidence clearly supports the first prediction. We find that a higher degree of pre-event ownership concentration leads to lower abnormal returns. We find evidence consistent with an active role of banks in disciplining management, but this does not go beyond what non-financial blockholders achieve, although we explicitly take into account direct equity stakes, proxy-voting rights, and supervisory board representation of banks. (JEL G21, G32)