What Drives a Corporation to Convert into an Income Trust?

• DOI: 10.2139/ssrn.676017
• Publication Date: 2012-10-25T15:16:23Z
• Authors: Federica Pazzaglia; Felipe Aguerrevere; Rahul Ravi Ravi
• Keywords: 0502 economics and business; 05 social sciences; 8. Economic growth

We study the equity valuation effects of the conversion to income trust; a form of corporate restructuring that has recently become very popular in Canada. We document positive abnormal returns at the announcement of the conversion and we study the characteristics of the converting companies to identify the source(s) of the value gain. We find that companies converting to income trusts are predominantly small and profitable with relatively high growth potential. These findings suggest that, together with the evident tax advantages, another strong rationale for the conversion is achieving greater visibility and access to the Canadian capital market on more competitive terms.