A Case Study Based On The Equity Carve-outs Of DC Holdings

Recently,with rapid development of the capital market,equity carve-outs have become an increasingly common way for companies to conduct asset restructuring in China.This paper presents an exploratory case study of DC Holdings which has conducted equity carve-outs twice in recent years.To be specific,DC Holdings divested its subsidiary called DCITS and the latter went public on SZSE in 2013.Subsequently,Digital China has also been carved out from DC Holdings in 2015.The purpose of this paper is to evaluate the performance of parent firms and their subsidiaries after equity carve-outs.Firstly,we describe the procedure of how DC holdings undertake equity carve-outs and then analyze the motivations of these activities.Based on current evidence,we conclude that DC Holdings is motivated by the search for operational efficiency,business transformation and the improvement of market value.Moreover,DC Holdings is also intended to raise funds to finance other activities of the subsidiaries through equity carve-outs.Secondly,we examine the stock price reactions around the announcement of these transactions and find that announcements of equity carve-outs produce positive stock returns for both parent firms and their subsidiaries.Thirdly,we investigate the financial and operating performance of DCITS after equity carve-outs.We find that carve-outs could result in operating improvements for the carve-out subsidiary.Finally,this paper reviews the successful experience of DC Holdings and tries to bring some enlightenment to those which intend to undertake equity carve-outs in the future.