Does a Parent–Subsidiary Structure Enhance Financing Flexibility?

Does a Parent–Subsidiary Structure Enhance Financing Flexibility?

  • ANAND M. VIJH

Article first published online: 16th May 2006 DOI: 10.1111/j.1540-6261.2006.00874.x

Abstract


I examine whether firms exploit a publicly traded parent–subsidiary structure to issue equity of the overvalued firm regardless of which firm needs funds, and whether this conveys opposite information about firm values. Using 90 subsidiary and 37 parent seasoned equity offering (SEO) announcements during 1981–2002, I document negative returns to issuers but insignificant returns to nonissuers in both samples, and insignificant changes in combined firm value and parent's nonsubsidiary equity value in subsidiary SEOs. Firms issue equity to meet their own financing needs. My evidence contrasts with previous studies and suggests that parent–subsidiary structures do not enhance financing flexibility.

Sign in to access the full article.

Related articles


MISCELLANEA

Article first published online: 5th July 2006 / DOI: 10.1111/j.1540-6261.2006.00880.x

Read Article

Back Matter

Article first published online: 5th July 2006 / DOI: 10.1111/j.1540-6261.2006.00881.x

Read Article

Corporate Equity Ownership and the Governance of Product Market Relationships

  • C. EDWARD FEE
  • CHARLES J. HADLOCK
  • SHAWN THOMAS

Article first published online: 16th May 2006 / DOI: 10.1111/j.1540-6261.2006.00871.x

Read Article

The Costs of Bankruptcy: Chapter 7 Liquidation versus Chapter 11 Reorganization

  • ARTURO BRIS
  • IVO WELCH
  • NING ZHU

Article first published online: 16th May 2006 / DOI: 10.1111/j.1540-6261.2006.00872.x

Read Article

Do Dividend Clienteles Exist? Evidence on Dividend Preferences of Retail Investors

  • JOHN R. GRAHAM
  • ALOK KUMAR

Article first published online: 16th May 2006 / DOI: 10.1111/j.1540-6261.2006.00873.x

Read Article

Secondary Trading Costs in the Municipal Bond Market

  • LAWRENCE E. HARRIS
  • MICHAEL S. PIWOWAR

Article first published online: 16th May 2006 / DOI: 10.1111/j.1540-6261.2006.00875.x

Read Article

Are you an Author?


Please read our submission requirements and find out how to submit your paper to the Journal of Finance

Submit a paper