Excess Control, Agency Costs and the Probability of Going Private in France

34 Pages Posted: 31 Oct 2013

See all articles by Mohamed Belkhir

Mohamed Belkhir

UAE University

Sabri Boubaker

University Paris-Est Créteil (UPEC) - Institut de Recherche en Gestion

Wael Rouatbi

Montpellier Business School; Institut de Recherche en Gestion (Université Paris Est Créteil)

Date Written: October 29, 2013

Abstract

The current study investigates the determinants of going private (GP) in France. It contrasts a sample of 161 firms that went private between 1997 and 2009 with a propensity-score-matched sample of firms that remained public during the same period. The results indicate that, unlike for firms that remain public, the largest controlling shareholders (LCSs) of GP firms control their firms using an incommensurately small fraction of ultimate cash flow rights. This is consistent with the view that agency problems between large and minority shareholders make public firms less attractive to investors, which reduces the benefits of staying public and encourages the LCSs to take their firms private or accept takeover offers. Additional results show that GP firms have more undervalued stock prices and higher free cash flows than non-GP firms. Expected interest tax shields, low growth opportunities, and pre-GP takeover interest do not seem to affect the probability of GP.

Keywords: Going private, Ownership structure, Large shareholders, Corporate governance

JEL Classification: G32, G34

Suggested Citation

Belkhir, Mohamed and Boubaker, Sabri and Rouatbi, Wael, Excess Control, Agency Costs and the Probability of Going Private in France (October 29, 2013). Global Finance Journal, Forthcoming. Available at SSRN: https://ssrn.com/abstract=2347162

Mohamed Belkhir

UAE University ( email )

College of Business and Economics
P.O.Box 17555
Al Ain, 17555
United Arab Emirates

Sabri Boubaker (Contact Author)

University Paris-Est Créteil (UPEC) - Institut de Recherche en Gestion ( email )

61 Avenue du General de Gaulle
94010 Creteil
France

HOME PAGE: http://www.irg.u-pec.fr/enseignant.php?num=58

Wael Rouatbi

Montpellier Business School ( email )

2300 Avenue des Moulins
Montpellier, 34080
France

Institut de Recherche en Gestion (Université Paris Est Créteil) ( email )

80 Avenue du General de Gaulle
Creteil, 94000
France

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