Going Private Transactions and the Market for Corporate Control

Abstract

This paper investigates the extent to which firms going private have different characteristics from other acquired firms. We find the firms going private have higher CEO shareholdings and higher institutional shareholdings. In addition, they have poorer growth prospects. However, there is no evidence that they have different internal governance structures, have higher free cash flow or spend different amounts on capital projects. Neither do they experience greater pressure from the market for corporate control. It was also found that the premiums received by shareholders in firms going private, where the CEO shareholdings were low, were lower than those received by shareholders of other acquired firms. Overall the results tend to offer stronger support for the financial incentive hypothesis than for the financial realignment hypothesis.