Market Liquidity, Investor Participation and Managerial Autonomy: Why Do Firms Go Private?
40 Pages Posted: 23 Mar 2007 Last revised: 12 Oct 2009
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Market Liquidity, Investor Participation and Managerial Autonomy: Why Do Firms Go Private?
Market Liquidity, Investor Participation and Managerial Autonomy: Why Do Firms Go Private?
Market Liquidity, Investor Participation and Managerial Autonomy: Why Do Firms Go Private?
Date Written: December 24, 2006
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: Going Private, Public vs Private Ownership, Corporate Governance, Investor Participation
JEL Classification: G30, G32
Suggested Citation: Suggested Citation
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