Model Building and Hypotheses Development

Abstract

Finance researchers have formulated and analyzed scores of hypotheses for a company going-private. However, only partial aspects have been discussed in the light of the handover to a new ownership regime after a buyout. The author will decompose the model into four levels of analysis: (1) post-exit changes in governance structure (hypotheses 1 to 5); (2) the effect of a new governance structure on management objectives (hypotheses 6 to 12); (3) the effect of a new governance structure on managerial activities and applied levers of value, both strategic and operational (hypotheses 13 to 28); and, (4) the effect of a new governance (post-exit) structure on corporate performance (hypotheses 29 and 30). The following figure illustrates the hypotheses and assumed relationships. These will be presented in the subsequent chapters and delved into in the upcoming case studies.