“Hit and Run” and “Revolving Doors”: evidence from the Italian stock market

Abstract

In recent years, a large number of companies on the Italian stock market have been delisted. Several of these companies implemented a “Hit and Run” strategy, choosing to go private only a few years after their IPO. In this study, we focus specifically on all Italian companies listed for less than 10 years between 1998 and 2010 and we calculate the return a potential investor realized by buying stocks in the IPO and selling them during the tender offer. This return can assume either positive or negative values. The cases of negative return are an interesting object of analysis. In these cases, if the majority shareholder promoted both the IPO and the tender offer, this negative return implies a loss for minority shareholders and a specular gain for the majority shareholder, and this fact has clear ethical implications. The Italdesign-Giugiaro case study is a remarkable example of this specific situation, called “Revolving Doors” by practitioners. Using regression analyses, we try to understand which features of the company and the tender offer influence the calculated return—and consequently the likelihood of observing “Revolving Doors”. In our sample, we show that the return is lower, and, at times, even negative, when the majority shareholder launches the tender offer, the first shareholder owns a large stake in the company, and the company is venture-backed. Our results suggest the need to develop new laws and governance mechanisms oriented towards the protection of minority shareholders and provide an opportunity to discuss the ethical implications of “Revolving Doors” using a deontological and teleological mode of analysis.