Equity restructuring via tracking stocks: Is there any value added?

In a tracking stock restructuring, the parent company issues a stock that tracks the earning performance of one of its divisions or subsidiaries. We study the effect of such an equity restructuring on the parent stock value. Parent stock response is insignificant in the short and long run. Thus, unlike equity carve-outs and spin-offs, issuing tracking stock does not create value, on average. This explains the complete cessation of tracking stock issuing since 2000. Our evidence also suggests that parent firms may have exploited tracking stock shareholders, which further explains the disappearance of tracking stocks.