Why Are Firms Sold? Evidence from Acquisitions of European Private Firms

54 Pages Posted: 1 Oct 2015 Last revised: 4 Jun 2017

See all articles by Yeejin Jang

Yeejin Jang

UNSW Australia Business School, School of Banking and Finance

Natalia Reisel

Fordham University

Multiple version iconThere are 2 versions of this paper

Date Written: May 1, 2016

Abstract

We examine motives to sell private firms and provide insights into the sources of value creation from acquisitions of private targets. Using a novel dataset, we document that less profitable, highly leveraged private firms that tend to underinvest are likely to be sold. Further, these firms experience a high level of top management turnover around the period of the acquisitions and this turnover is sensitive to poor firm performance. Additionally, we find significant improvement in firm performance such as profitability and sales growth following the acquisitions. These firms also adjust their capital structure towards lower leverage. By and large, our results suggest that sales of private firms facilitate the transition of assets to a more efficient use.

Keywords: Sell-outs, Private firms, Efficient redeployment of assets, Mergers and acquisitions

JEL Classification: G30, G32, G34

Suggested Citation

Jang, Yeejin and Reisel, Natalia, Why Are Firms Sold? Evidence from Acquisitions of European Private Firms (May 1, 2016). Available at SSRN: https://ssrn.com/abstract=2667676 or http://dx.doi.org/10.2139/ssrn.2667676

Yeejin Jang (Contact Author)

UNSW Australia Business School, School of Banking and Finance ( email )

Sydney, NSW 2052
Australia

Natalia Reisel

Fordham University ( email )

45 Columbus Ave
New York, NY 10023
United States

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