Tunneling and the decision to go private: Evidence from Hong Kong

Julan Du, Qing He () and San Wing Yuen

Pacific-Basin Finance Journal, 2013, vol. 22, issue C, 50-68

Abstract: We examine a sample of going-private transactions in the Hong Kong stock market from 1989 to 2008. Privatized firms experienced large negative abnormal returns prior to the announcement of going private transaction, particularly in those firms with weak corporate governance structure and a high level of related party transactions. The likelihood of a firm to go private is high in those poorly governed firms with large free cash flow. Our evidence suggests that controlling shareholders carry out self-dealings that lead to value losses and depressed stock prices. When remaining public is no longer attractive, controlling shareholders take the firm private by paying a relatively low premium to minority shareholders.

Keywords: Tunneling; Going private; Related party transactions; Free cash flow (search for similar items in EconPapers)
JEL-codes: G34 (search for similar items in EconPapers)
Date: 2013
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Citations: View citations in EconPapers (5)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:pacfin:v:22:y:2013:i:c:p:50-68

DOI: 10.1016/j.pacfin.2012.10.001

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