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- Title
DO TRACKING STOCKS REDUCE INFORMATION ASYMMETRIES? AN ANALYSIS OF LIQUIDITY AND ADVERSE SELECTION.
- Authors
Elder, John; Jain, Pankaj K.; Kim, Jang-Chul
- Abstract
A firm's announcement that it intends to restructure based on tracking stock is usually associated with a positive stock price reaction, at least in the short run. Typically, this reaction is attributed to expected reductions in a diversification discount, through reduced agency costs or information asymmetries. We reinvestigate this latter hypothesis by focusing on the liquidity provided by market makers before and after a firm issues a tracking stock. Our results suggest that such restructurings are not effective at reducing information asymmetries. Rather, firms that issue tracking stocks exhibit less liquidity and greater adverse selection than comparable control firms.
- Subjects
CORPORATE reorganizations; TRACKING stock; PARENT companies; SUBSIDIARY corporations; DIVERSIFICATION in industry; DISCOUNT prices
- Publication
Journal of Financial Research, 2005, Vol 28, Issue 2, p197
- ISSN
0270-2592
- Publication type
Article
- DOI
10.1111/j.1475-6803.2005.00121.x