Undervaluation, private information, agency costs and the decision to go private

C. Weir, D. Laing and Mike Wright

Applied Financial Economics, 2005, vol. 15, issue 13, 947-961

Abstract: There is widespread anecdotal evidence that poor stock market performance is an important reason for taking a company private. The results support the perceived undervaluation hypothesis. The finding also applies to management buy-outs, which indicates that the management of these firms had private information. It is also found that firms going private had non-optimal governance structures, higher board and institutional ownership. The last finding is consistent with going private transactions providing institutions with a means of existing firms with poor market valuation, particularly during a time of very limited pressure from the market for corporate control.

Date: 2005
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DOI: 10.1080/09603100500278221

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