Tracking Stocks

SummaryTracking stocks are common stock of the firm that track the success of a particular business unit without changing the conglomerate structure. Thus, they try to combine the advantages of an external financing via the market and an internal financing. However, the structure evokes governance problems. This paper examines the design of tracking stocks and the resulting advantages and disadvantages. It further surveys the existing empirical literature on tracking stocks. The analysis suggests that tracking stocks are an equity structure that may add value for specific types of firms.