Since the 1980s, there has been a notable rise in equity carve-outs (ECOs), where a subsidiary of a publicly listed parent firm goes public. These transactions are unique as they involve both corporate restructuring and financing through an initial public offering (IPO). While previous studies have primarily focused on the restructuring aspect—separating a subsidiary from its conglomerate parent—this empirical study emphasizes the corporate finance perspective, specifically the capital raising through IPOs. Notable examples in Germany include the IPOs of Infineon Technologies AG and Deutsche Postbank AG, both structured as equity carve-outs. Key research interests include the significant positive initial returns often seen in these IPOs, known as the underpricing phenomenon, alongside the negative long-term performance of IPO stocks. This juxtaposition leads to what is termed the “ECO Puzzle.” The study aims to explore this puzzle within the context of the largest sample of equity carve-outs in Germany to date, shedding light on the dynamics of initial returns and subsequent performance trends in this unique financial landscape.
