Delistings, Controlling Shareholders, and Firm Performance in Europe
European Financial Management, Forthcoming
45 Pages Posted: 5 Feb 2010 Last revised: 7 Jan 2012
Date Written: November 26, 2011
Controlling shareholders possess private information on a firm’s future profitability, which can be used to take the company private at the most favorable time. Using a novel data set of 429 European companies that went private over the period 1997–2005 but continued operating as standalone companies, we investigate the role of controlling shareholders in delisting decisions. We find that minority shareholders earn lower abnormal returns in the 61-day event window (-30, 30) surrounding the delisting announcement when the controlling shareholder takes the company private, but this lower premium disappears once we control for the firm’s characteristics in the multivariate analysis. In the analysis of post-announcement performance, we find no evidence that firms delisted by their controlling shareholders improve their operating performance. These results do not support the hypothesis that controlling shareholders use this information to expropriate minority investors with minority freeze-outs. Examining delistings carried out by family controlling shareholders, we rule out the possibility that the previous result is due to heterogeneity across controlling shareholders. In fact, even when we focus exclusively on family controlling shareholders, we find no evidence of performance improvement after the delisting.
Keywords: delisting, freeze-out, private firm, going private
JEL Classification: G34
Suggested Citation: Suggested Citation