The Sources of Shareholder Wealth Gains from Going Private Transactions: The Role of Controlling Shareholders

65 Pages Posted: 4 Apr 2014

See all articles by Sabri Boubaker

Sabri Boubaker

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

Alexis Cellier

University Paris-Est Créteil (UPEC)

Wael Rouatbi

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

Date Written: April 2, 2014

Abstract

The present study investigates the sources of shareholder wealth gains – as measured by cumulative abnormal returns and premiums – from going private transactions (GPTs). Using data for 314 GPTs from 18 Western European countries, we find that the announcements of GPTs generate a cumulative average abnormal return of about 22% and that pre-transaction shareholders on average receive a raw premium of about 36%. We further find that these shareholder wealth gains increase with the degree of separation of cash-flow and control rights of the pre-transaction ultimate owner and decrease with its ownership interests and with the presence of a second large shareholder. Taken together, these findings support the view that GPTs are expected to mitigate the inefficiencies induced by pre-transaction agency problems between controlling and minority shareholders. Thus, shareholder wealth gains from GPTs reflect the potential additional value that will be created under private ownership.

Keywords: Going private; Wealth gains; Corporate governance; Private benefits of control

JEL Classification: G32; G34

Suggested Citation

Boubaker, Sabri and Cellier, Alexis and Rouatbi, Wael, The Sources of Shareholder Wealth Gains from Going Private Transactions: The Role of Controlling Shareholders (April 2, 2014). Journal of Banking and Finance, Forthcoming. Available at SSRN: https://ssrn.com/abstract=2419660

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

Alexis Cellier

University Paris-Est Créteil (UPEC) ( email )

61 avenue du General de Gaulle
Creteil cedex, 94010
France

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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