Delistings, Controlling Shareholders, and Firm Performance in Europe

European Financial Management, Forthcoming

45 Pages Posted: 5 Feb 2010 Last revised: 7 Jan 2012

See all articles by Ettore Croci

Ettore Croci

Catholic University of the Sacred Heart of Milan

Alfonso Del Giudice

Catholic University of the Sacred Heart of Milan

Date Written: November 26, 2011

Abstract

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

Croci, Ettore and Del Giudice, Alfonso, Delistings, Controlling Shareholders, and Firm Performance in Europe (November 26, 2011). European Financial Management, Forthcoming. Available at SSRN: https://ssrn.com/abstract=1548515

Ettore Croci (Contact Author)

Catholic University of the Sacred Heart of Milan ( email )

Largo Gemelli, 1
Via Necchi 9
Milan, MI 20123
Italy

Alfonso Del Giudice

Catholic University of the Sacred Heart of Milan ( email )

Largo Agostino Gemelli 1
Milano, 20123
Italy

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