The sources of shareholder wealth gains from going private transactions: The role of controlling shareholders |
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| Institution: | 1. Champagne School of Management, Groupe ESC Troyes, Troyes, France;2. IRG, Université Paris Est, Créteil, France;3. IPAG Lab, IPAG Business School, France;1. Norges Bank, Financial Stability Research, Bankplassen 2, P.O. Box 1179, Sentrum, Norway;2. BI Norwegian Business School, Nydalsveien 37, 0484 Oslo, Norway;1. Department of Accounting, Finance, and Economics, College of Business Administration, Winthrop University, 423 Thurmond Building, Rock Hill, SC 29733, United States;2. Department of Finance, Belk College of Business, University of North Carolina at Charlotte, 9201 University City Blvd., Charlotte, NC 28223, United States;1. Institut de statistique, biostatistique et sciences actuarielles (ISBA), Université Catholique de Louvain, Louvain-la-Neuve, Belgium;2. Graduate Institute of Finance, National Taiwan University of Science and Technology, Taiwan;3. Department of Finance, National Taiwan University, Taiwan;1. School of Business, University of Alberta, Canada;2. Department of Economics, Hitotsubashi University, Japan;1. Department of Economics and Finance, Canisius College, 2001 Main Street, Buffalo, NY 14208, United States;2. School of Accounting and Finance, Faculty of Business, Hong Kong Polytechnic University, Hunghom, Kowloon, Hong Kong |
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| Abstract: | The present study investigates the sources of shareholder wealth gains – as measured by cumulative abnormal returns and premiums – from going private transactions (GPTs). Using data for 314 GPTs from 18 Western European countries, we find that the announcements of GPTs generate a cumulative average abnormal return of about 22% and that pre-transaction shareholders on average receive a raw premium of about 36%. We further find that these shareholder wealth gains increase with the degree of separation of cash-flow and control rights of the pre-transaction ultimate owner and decrease with its ownership interests and with the presence of a second large shareholder. Taken together, these findings support the view that GPTs are expected to mitigate the inefficiencies induced by pre-transaction agency problems between controlling and minority shareholders. Thus, shareholder wealth gains from GPTs reflect the potential additional value that will be created under private ownership. |
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| Keywords: | Going private Wealth gains Corporate governance Private benefits of control |
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