Going Private Decision and Firm Characteristics: Evidence from the Regulation Change in Taiwan

Abstract

Firms in Taiwan had been required to go public if their capital exceeds 200 million NT dollars since 1981. However, this capital threshold was lifted in November 2001. The main purpose of this research is to investigate the factors that may influence the going private decision due to the regulation change. The empirical results show that firms with distorted capital formation process at or after mandated public offerings choose to go private immediately after the deregulation. The results also indicate that firms with poor financial performances are more likely to go private. We conjectured it is due to the profitability requirement for firms to be listed in Taiwan Security Exchange or traded Over the Counter. Therefore, public firms will have incentives to go private if the listing seems mission impossible. The above finding provides the evidence that firms going private take consideration of costs and benefits of staying public.