Financial Distress Costs, Incentive Realignment, Private Equity and the Decision to Go Private: Public to Private Activity in the UK

41 Pages Posted: 14 May 2004

See all articles by Mike Wright

Mike Wright

Nottingham University Business School

Charlie Weir

Robert Gordon University - Aberdeen Business School

David Laing

Robert Gordon University - Centre for the Enhancement of Learning and Teaching (CELT)

Andrew Burrows

Nottingham University Business School (NUBS)

Date Written: May 2004

Abstract

This paper investigates how far UK public to private transactions can be explained by financial distress costs or incentive realignment. We find that firms going private are more likely to be smaller, more diversified, younger and have lower Q ratios than firms remaining public. The results therefore offer limited support for both theories. We also find that private equity providers are more likely to be involved in the process if the firm going private is more diversified and has a higher Q ratio. This suggests that private equity providers are more interested in growth prospects than potential financial distress costs.

Keywords: MBOS, LBOS, private equity, takeovers, financial distress costs, financial incentives, firm age, free cashflow, diversification

JEL Classification: G32, G34, G35, M21, L21

Suggested Citation

Wright, Mike and Weir, Charles and Laing, David and Burrows, Andrew John, Financial Distress Costs, Incentive Realignment, Private Equity and the Decision to Go Private: Public to Private Activity in the UK (May 2004). Available at SSRN: https://ssrn.com/abstract=546042 or http://dx.doi.org/10.2139/ssrn.546042

Mike Wright

Nottingham University Business School ( email )

Jubilee Campus
Wollaton Road
Nottingham, NG8 1BB
United Kingdom
+44 115 951 5257 (Phone)
+44 115 951 5204 (Fax)

Charles Weir (Contact Author)

Robert Gordon University - Aberdeen Business School ( email )

Garthdee Road
RGU
Aberdeen AB10 7QE
United Kingdom
0044 1224 263800 (Phone)
0044 1224 263838 (Fax)

David Laing

Robert Gordon University - Centre for the Enhancement of Learning and Teaching (CELT) ( email )

Schoolhill
Aberdeen, Scotland AB10 1F
United Kingdom
0044 1224 262246 (Phone)
0044 1224 263344 (Fax)

Andrew John Burrows

Nottingham University Business School (NUBS) ( email )

Jubilee Campus
Wollaton Road
Nottingham, NG8 1BB
United Kingdom

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