Going Private Transactions by U.S.-Listed Chinese Companies: What Drives the Premiums Paid?

30 Pages Posted: 7 Apr 2014 Last revised: 14 Sep 2021

See all articles by Yea-Mow Chen

Yea-Mow Chen

San Francisco State University - Department of Finance

Ying Sophie Huang

Zhejiang University, School of Management

David K. Wang

National University of Kaohsiung

Chun-Chou Wu

Independent

Date Written: July 13, 2013

Abstract

This paper examines the premiums paid by U.S.-listed Chinese companies in going-private transactions over the period from 2010 to 2012 and tests several incentive hypotheses for taking public companies private. Apart from the factors representing perceived difficulties and potential litigation risks in buying back shares, and corporate governance and agency issues, we focus our attention on the undervaluation of share prices and the amount of cash holdings of the sample firms. The latter two factors turn out to be the primary drivers of the premiums paid. Our empirical evidence strongly suggests that the current phase of going-private transactions by U.S.-listed Chinese firms is most likely to be linked to arbitrage considerations, i.e., to arbitrage the undervalued share prices and the cash holdings available to the acquirers.

Keywords: Firm undervaluation, Corporate governance, Going private

JEL Classification: G32, G34, K22, M40

Suggested Citation

Chen, Yea-Mow and Huang, Ying and Wang, David K. and Wu, Chun-Chou, Going Private Transactions by U.S.-Listed Chinese Companies: What Drives the Premiums Paid? (July 13, 2013). International Review of Economics and Finance (2014), Available at SSRN: https://ssrn.com/abstract=2421109

Yea-Mow Chen

San Francisco State University - Department of Finance ( email )

1600 Holloway Avenue
San Francisco, CA 94132
United States

Ying Huang (Contact Author)

Zhejiang University, School of Management ( email )

866 Yuhangtang Road
Hangzhou, Zhejiang 310058
China

David K. Wang

National University of Kaohsiung ( email )

Kaohsiung, 811
Taiwan

Chun-Chou Wu

Independent ( email )

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