Date of Award

5-8-2004

Degree Type

Dissertation

Degree Name

Ph.D.

Degree Program

Financial Economics

Department

Economics and Finance

Major Professor

Wei, Peihwang

Second Advisor

Mukerjee, Tarun

Third Advisor

Daal, Elton

Fourth Advisor

Whitney, Gerald

Fifth Advisor

Varela, Oscar

Abstract

Chapter 1 of the dissertation investigates the firms' restructuring choice between minority carve-outs and tracking stocks using samples during 1990-2001. The extra compensation from the restructured units, the liquidity conditions, and the preservation of synergy are the significant factors determining a firm's restructuring decision. Additional compensation seems to be a major driving force behind restructuring via tracking stock. One year after the restructuring, the executive compensation of the tracking stock group increases by 241% compared to 32% for the carve-out sample. In spite of the significant increase in the compensation, the three-year buy-and-hold return for tracking stock parents is more negative than that of the carve-out parents. Thus, if the extra compensation was designed to align the interests of managers and shareholders, the goal did not materialize. The primary motive behind restructuring through carve-outs is to control the liquidity problem. Although the operating performance of the parents of either group does not improve three years after the restructuring, the long-term stock performance of carve-out parents improves when a restructured unit is less related to the parent. Chapter 2 of the dissertation compares the degree of overreaction between value stocks and growth stocks using the implied volatility from option prices. Applying Stein's (1989) mean reversion model and Heynen, Kemna, and Vorst's (1994) GARCH and EGARCH methods, I compare the theoretical and empirical measures of reaction of longterm options in respect to short-term options for the growth and the value portfolios, which are separately classified by price-to-book and price-to-earning ratios. The evidence suggests that growth portfolios largely overreact to a greater degree than the value portfolios assuming mean reversion, GARCH, and EGARCH models. The findings potentially explain why value stocks outperform growth stocks in the long run, lending support to overreaction as an explanation for the value effect.

Rights

The University of New Orleans and its agents retain the non-exclusive license to archive and make accessible this dissertation or thesis in whole or in part in all forms of media, now or hereafter known. The author retains all other ownership rights to the copyright of the thesis or dissertation.

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