Universal Banks, Corporate Control, and Equity Carve-Outs in Germany

This paper analyzes equity carve-outs for exchange-listed German firms. We rely on the fact that carve-outs always change the governance structure of the conducting firm to study issues of corporate control. Our main conjecture is that management control affects market reactions to the announcement of carve-outs. If weaker management control leads to less efficiently managed firms, in particular firms less subject to corporate control should be affected by the carve-out, because these will benefit the most from a change in the governance structure. Consistent with this conjecture, our main result is that a higher degree of pre-event ownershipconcentration leads to lower abnormal returns. We do not find evidence consistent with a "special" role of banks in disciplining management, although we explicitly take into account direct equity stakes, proxy-voting rights, and supervisory board representation of banks