An examination of the liquidity of equity carve-out parents

Although there have been other equity carve-out (ECO) studies, this is the first study to examine the liquidity of ECO parents. We investigate the traded parents of 234 equity carve-outs (ECO) during the period from 1993 to 2018. We examine several variables and their impact on three liquidity measures: bid-ask spread, turnover, and volatility. We confirm the Vijh (1994) liquidity measures: bid-ask spread, turnover, and volatility liquidity measures over seven periods: carve-out announcement, carve-out ex-date, five-day post carve-out period, lock-up date, second event announcement, second event ex-date, and the five-day post second event period. Also, we observe that consistent with Bali, Peng, Shen, and Tang (2014), liquidity can vary over time; liquidity measures peak at the lock-up date and the second event announcement date. In addition, we extend Cao, Field, and Hanka (2004), who excluded equity carve-outs and we observe that carve-out parent liquidity increases at the lock-up period. Moreover, we observe that the type of subsidiary second event can influence carve-out parent liquidity. The implications are that investors can economically benefit from ECO liquidity.