Abstract

http://ssrn.com/abstract=1418021
 
 

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Financial Visibility and the Decision to go Private


Hamid Mehran


Federal Reserve Bank of New York

Stavros Peristiani


Federal Reserve Bank of New York

June 1, 2009

FRB of New York Staff Report No. 376

Abstract:     
A large fraction of the companies that went private between 1990 and 2007 were fairly young public firms, often with the same management team making the crucial restructuring decisions both at the time of the initial public offering (IPO) and the buyout. Why did these public firms decide to revert to private ownership? To answer this question, we investigate the determinants of the decision to go private over a firm’s entire public life cycle. Our evidence reveals that firms with declining growth in analyst coverage, falling institutional ownership, and low stock turnover were more likely to go private and opted to do so sooner. We argue that a primary reason behind the decision of IPO firms to abandon their public listing was a failure to attract a critical mass of financial visibility and investor interest. Consistent with the findings of earlier literature, we also find strong support for Jensen’s free-cash-flow hypothesis, which argues that these corporate restructurings are a useful tool in capital markets for mitigating agency problems between insiders and outside shareholders.

Number of Pages in PDF File: 56

Keywords: financial visibility, LBOs, going private, analyst coverage, institutional investor, insider ownership

JEL Classification: G00, G30

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Date posted: June 11, 2009  

Suggested Citation

Mehran, Hamid and Peristiani, Stavros, Financial Visibility and the Decision to go Private (June 1, 2009). FRB of New York Staff Report No. 376. Available at SSRN: http://ssrn.com/abstract=1418021 or http://dx.doi.org/10.2139/ssrn.1418021

Contact Information

Hamid Mehran (Contact Author)
Federal Reserve Bank of New York ( email )
33 Liberty Street
New York, NY 10045
United States
212-720-6215 (Phone)
Stavros Peristiani
Federal Reserve Bank of New York ( email )
33 Liberty Street
New York, NY 10045
United States
212-720-7829 (Phone)
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