We analyze the pre-transaction characteristics of firms going private in the UK, France, Germany and the Nordic region from 2002-2006. We find that a firms propensity to go private is an increasing function of leverage, ownership and control, undervaluation and cash flows. A previously suggested explanation for the higher leverage in firms going private is the expropriation of pre-transaction debt holders…
Contents
1. Introduction
2. Background
3. Theoretical Predictions and Hypotheses
3.1 Information Availability
3.1.1 Adverse Selection
3.1.2 Duplicative Monitoring
3.1.3 Empirical Hypothesis for Information Considerations
3.2 Access to Capital
3.2.1 Cost of Capital
3.2.2 Overcoming Financial Constraints
3.2.3 Empirical Hypothesis for Access to Capital
3.3 Tax Benefit
3.3.1 Tax Benefit versus Wealth Transfer
3.3.2 Empirical Hypothesis for Tax Benefit
3.4 Liquidity
3.4.1 Liquidity versus Control Benefit
3.4.2 Empirical Hypothesis for Liquidity
3.5 Ownership and Control
3.5.1 Control versus Liquidity
3.5.2 Investor Recognition
3.5.3 Corporate Governance and Ownership Concentration
3.5.4 Empirical Hypothesis for Ownership and Control
3.6 Undervaluation
3.6.1 Empirical Hypothesis for Undervaluation
3.7 Free Cash Flow
3.7.1 Empirical Hypothesis for Free Cash Flow
3.8 Managerial Inefficiency
3.8.1 Empirical Hypothesis for Managerial Inefficiency…
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Author: Jonas Samlin,Maja Walla Enander
Source: Stockholm School of Economics