The Role of Disclosure in Closing Going Private Deals.

Abstract

Going private transactions involve a perceived conflict of interest that occurs when (i) management and other insiders transfer ownership and control away from minority shareholders to affiliated parties, and (ii) the company terminates its public status. These deals are subject to special SEC rules that mandate management to provide detailed disclosure to all shareholders before a general vote. We examine whether disclosure mitigates or exacerbates frictions between minority shareholders and the acquiring parties. We find that the volume of disclosure is positively associated with the likelihood of closing a deal. However, the volume of disclosure is also positively associated with the intensity of shareholders’ negotiations (i.e., higher likelihood of upward price revisions and shareholder litigation). Our findings suggest that disclosure plays an incremental role in completing going private transactions and shed light on the trade-offs that managers and other insiders face when determining the extent of disclosure in SEC filings.

Keywords: disclosure; going private; acquisitions; litigation; SEC filings.

JEL Classification: M41, M48, G34