Financial Visibility and the Decision to Go Private

Abstract

Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Abstract A large fraction of the companies that went private between 1990 and 2007 were fairly young public firms, often with the same management team making the crucial restructuring decisions both at the time of the initial public offering (IPO) and the buyout. Why did these public firms decide to revert to private ownership? To answer this question, we investigate the determinants of the decision to go private over a firm's entire public life cycle. Our evidence reveals that firms with declining growth in analyst coverage, falling institutional ownership, and low stock turnover were more likely to go private and opted to do so sooner. We argue that a primary reason behind the decision of IPO firms to abandon their public listing was a failure to attract a critical mass of financial visibility and investor interest. Consistent with the findings of earlier literature, we also find strong support for Jensen's free-cash-flow hypothesis, which argues that these corporate restructurings are a useful tool in capital markets for mitigating agency problems between insiders and outside shareholders. Terms of use: Documents in

Earnings Management to Avoid Delisting from a Stock Market

“…Also auditors face a higher litigation risk if the audited firm is in poor financial condition and hence they are likely to closely monitor managers' accounting choices and insist on conservative accounting practices (Stice 1991 If the documented DACC reflect management's purposeful use of accounting discretion to boost earnings we expect the magnitude of DACC to be sensitive to the costs and benefits of earnings management. Past research suggests that benefits of public listing vary across firms (Kashefi Pour and Lasfer 2013;Mehran and Peristiani 2010). We expect that firms that benefit more from their presence at a public stock market have stronger incentives to manage earnings to avert their delisting.…”

Corporate Restructuring

“…The higher takeover propensity is concentrated to firms where these directors have positive going-private experience and are influential on the current board. See also Becker and Pollet (2008), Weir et al (2008), Bharath and Dittmar (2010), and Mehran and Peristiani (2010) for evidence on firms' decision to go private through a leveraged buyout transaction.…”

Managerial Incentives and Value Creation: Evidence from Private Equity

“…11 See Bharath and Dittmar (2006) and Mehran and Peristiani (2006). when they are owned by a PE firm and other periods when they are publicly traded (and therefore must disclose financial and compensation data).…”