Why are Firms Sold? Evidence from Acquisitions of European Private Firms

54 Pages Posted: 31 May 2016

See all articles by Yeejin Jang

Yeejin Jang

UNSW Australia Business School, School of Banking and Finance

Natalia Reisel

Fordham University

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Date Written: May 29, 2016

Abstract

We examine motives to sell private firms and provide insights into the sources of value creation from acquisitions of private targets. Using a novel dataset, we document that less profitable, highly leveraged private firms that tend to underinvest are likely to be sold. Further, these firms experience a high level of top management turnover around the period of the acquisitions and this turnover is sensitive to poor firm performance. Additionally, we find significant improvement in firm performance such as profitability and sales growth following the acquisitions. These firms also adjust their capital structure towards lower leverage. By and large, our results suggest that sales of private firms facilitate the transition of assets to a more efficient use.

Keywords: Private firms, Mergers and acquisitions, Management turnover

JEL Classification: G34, G32

Suggested Citation

Jang, Yeejin and Reisel, Natalia, Why are Firms Sold? Evidence from Acquisitions of European Private Firms (May 29, 2016). Available at SSRN: https://ssrn.com/abstract=2786365 or http://dx.doi.org/10.2139/ssrn.2786365

Yeejin Jang (Contact Author)

UNSW Australia Business School, School of Banking and Finance ( email )

Sydney, NSW 2052
Australia

Natalia Reisel

Fordham University ( email )

113 West 60th Street
New York, NY 10023
United States

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