Incentive Effects, Monitoring Mechanisms and the Market for Corporate Control: An Analysis of the Factors Affecting Public to Private Transactions in the UK

23 Pages Posted: 22 Jun 2005

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)

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Abstract

This paper investigates the factors that influence the decision to change the status of a publicly quoted company to that of a private company. We find that firms that go private are more likely to have higher CEO ownership and higher institutional ownership. In relation to their board structures, firms going private tend to have more duality but there is no statistical difference in the proportion of non-executive directors. They do not show signs of having excess free cash flows but there is some evidence of lower growth opportunities. We do not find that firms going private experience a greater threat of hostile acquisition. The results are therefore consistent with incentive and monitoring explanations of going private. Calculation of the probability of going private shows that incentive effects are stronger than the monitoring effects.

Suggested Citation

Wright, Mike and Weir, Charles and Laing, David, Incentive Effects, Monitoring Mechanisms and the Market for Corporate Control: An Analysis of the Factors Affecting Public to Private Transactions in the UK. Journal of Business Finance & Accounting, Vol. 32, No. 5-6, pp. 909-943, June 2005. Available at SSRN: https://ssrn.com/abstract=736412

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)

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