Defining the Relationship Between Firm’s Performance and Delisting: Empirical Evidence of Going Private in Europe

Abstract

One of the reasons why a firm chooses to go private is the significant amount of cash flows which can exacerbate agency costs: this can indicate poor growth opportunities and make external resources less required. In line with both knowledge economy and financial literature, the paper aims to indagate the relationship between agency costs, firm’s performance, and delisting. Despite there is evidence in finance that highlights the role of exchange regulators in the going private processes, just few studies focus on the voluntary delisting and its antecedents. Starting from the knowledge economy setting, this paper aims to define how firm’s financial performance moderates the relationship between agency costs and delisting choices. Based on a sample of non-financial firms delisted from the most important European stock markets between 1997 and 2017, we applied an OLS regression to analyze the main variables that influence the going private processes. We find that a high level of stock market performance, associated with high level of free cash flows, promotes going private as a means of anticipating and preventing future value decreases. Finally, the paper provides practical implications for the development of new approach of delisting choice.