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

See all articles by Christian Andres

Christian Andres

WHU - Otto Beisheim School of Management

André Betzer

University of Wuppertal - Schumpeter School of Business and Economics

Charlie Weir

Robert Gordon University - Aberdeen Business School

Abstract

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

Suggested Citation

Andres, Christian and Betzer, André and Weir, Charles, 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, Available at SSRN: https://ssrn.com/abstract=971550

Christian Andres

WHU - Otto Beisheim School of Management ( email )

Burgplatz 2
Vallendar, 56179
Germany

André Betzer (Contact Author)

University of Wuppertal - Schumpeter School of Business and Economics ( email )

Gaußstraße 20
Wuppertal
Germany

HOME PAGE: http://finance.uni-wuppertal.de/index.php?id=1153

Charles Weir

Robert Gordon University - Aberdeen Business School ( email )

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

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