Undervaluation and private equity takeovers

Subhrendu Rath and Mamunur Rashid
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Subhrendu Rath: Axes Partners, South San Francisco, CA, USA
Mamunur Rashid: Business Administration Discipline, Khulna University, Bangaldesh

Australian Journal of Management, 2016, vol. 41, issue 4, 735-759

Abstract: Undervaluation is often offered as an important consideration in private equity transactions. This study analyzes the importance of undervaluation, vis-à -vis information asymmetry, as a determining factor in ‘going-private’ transactions in Australia. Using a matched sample of firms from 1990 to 2012, we test a predictive choice model. The empirical results show that market undervaluation is a dominant factor in private equity takeovers. These results are robust to alternative measures of valuation, prevailing market conditions, money flows and subperiods. JEL Classification: G11, G15

Keywords: Going private; private equity; valuation (search for similar items in EconPapers)
JEL-codes: G11 G15 (search for similar items in EconPapers)
Date: 2016
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Persistent link: https://EconPapers.repec.org/RePEc:sae:ausman:v:41:y:2016:i:4:p:735-759

DOI: 10.1177/0312896215594465

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