Shareholder Wealth Gains Through Better Corporate Governance - The Case of European LBO-Transactions
Financial Markets and Portfolio Management, Vol. 21, No. 4, pp. 403-424, 2007
Posted: 28 Mar 2007
We examine shareholder wealth effects in a heterogeneous sample of 115 European leveraged going private transactions from 1997 to 2005. Average abnormal returns as reaction to the LBO announcement amount to 24.20%. In cross-sectional regressions, we find that these value gains can largely be attributed to differences in corporate governance: on a macro level, abnormal returns for pre-LBO shareholders are larger in countries with a poor protection of minority shareholders. On a firm level, companies with a high pre-LBO free float and comparatively weak monitoring by shareholders tend to show high abnormal returns. Furthermore, companies that are undervalued with respect to an industry peer-group exhibit higher announcement returns, indicating that agency conflicts and/or market inefficiencies can serve as an explanation.
Keywords: LBOs, Corporate Governance, Agency Theory, Event Study
JEL Classification: G14, G32, G34
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