Financial Visibility and the Decision to go Private
56 Pages Posted: 11 Jun 2009
There are 3 versions of this paper
Financial Visibility and the Decision to Go Private
Financial Visibility and the Decision to go Private
Financial Visibility and the Decision to Go Private
Date Written: June 1, 2009
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.
Keywords: financial visibility, LBOs, going private, analyst coverage, institutional investor, insider ownership
JEL Classification: G00, G30
Suggested Citation: Suggested Citation
Do you have negative results from your research you’d like to share?
Recommended Papers
-
Leveraged Buyouts and Private Equity
By Steven N. Kaplan and Per Strömberg
-
Leveraged Buyouts and Private Equity
By Steven N. Kaplan and Per Strömberg
-
Do Buyouts (Still) Create Value‘
By Shourun Guo, Edith S. Hotchkiss, ...
-
Do Buyouts (Still) Create Value?
By Shourun Guo, Edith S. Hotchkiss, ...
-
Do Buyouts (Still) Create Value?
By Shourun Guo, Edith S. Hotchkiss, ...
-
Private Equity and Long-Run Investment: The Case of Innovation
By Morten Sorensen, Per Strömberg, ...
-
Private Equity and Long-Run Investment: The Case of Innovation
By Josh Lerner, Morten Sorensen, ...
-
Private Equity and Long-Run Investment: The Case of Innovation
By Morten Sorensen, Per Strömberg, ...
-
Private Equity, Leveraged Buyouts and Governance
By Douglas J. Cumming, Mike Wright, ...