Market Liquidity, Investor Participation and Managerial Autonomy: Why Do Firms Go Private?

54 Pages Posted: 2 Apr 2006

See all articles by Arnoud W. A. Boot

Arnoud W. A. Boot

University of Amsterdam - Amsterdam Business School; Centre for Economic Policy Research (CEPR); Tinbergen Institute

Anjan V. Thakor

Washington University, Saint Louis - John M. Olin School of Business; European Corporate Governance Institute (ECGI)

Radhakrishnan Gopalan

Washington University in St. Louis - John M. Olin Business School

Multiple version iconThere are 3 versions of this paper

Date Written: June 2007

Abstract

We analyze a publicly-traded firm's decision to stay public or go private, focusing on the stochastic nature of investor participation in the public market. The liquidity of public ownership is both a blessing and a curse: it facilitates trading and lowers the cost of capital, but it also introduces volatility in a firm's shareholder base. This exposes management to uncertainty regarding the identity of future shareholders and their intervention in management decisions, consequently affecting the manager's perceived decision-making autonomy and curtailing managerial inputs. We extract predictions about how investor participation affects stock price level and volatility and the public firm's incentives to go private, thereby providing a link between investor participation and firm participation in public markets.

Keywords: Managerial autonomy, liquidity, ownership, investor participation, firm participation

JEL Classification: G32

Suggested Citation

Boot, Arnoud W. A. and Thakor, Anjan V. and Gopalan, Radhakrishnan, Market Liquidity, Investor Participation and Managerial Autonomy: Why Do Firms Go Private? (June 2007). ECGI Finance Working Paper No. 119/2006, Available at SSRN: https://ssrn.com/abstract=894445 or http://dx.doi.org/10.2139/ssrn.894445

Arnoud W. A. Boot (Contact Author)

University of Amsterdam - Amsterdam Business School ( email )

Roetersstraat 11
Amsterdam, 1018 WB
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Centre for Economic Policy Research (CEPR) ( email )

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Tinbergen Institute ( email )

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Anjan V. Thakor

Washington University, Saint Louis - John M. Olin School of Business ( email )

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Campus Box 1133
St. Louis, MO 63130-4899
United States

European Corporate Governance Institute (ECGI) ( email )

c/o the Royal Academies of Belgium
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Belgium

Radhakrishnan Gopalan

Washington University in St. Louis - John M. Olin Business School ( email )

One Brookings Drive
Campus Box 1133
St. Louis, MO 63130-4899
United States

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