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Undervaluation and private equity takeovers

Author

Listed:
  • Subhrendu Rath

    (Axes Partners, South San Francisco, CA, USA)

  • Mamunur Rashid

    (Business Administration Discipline, Khulna University, Bangaldesh)

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

Suggested Citation

  • Subhrendu Rath & Mamunur Rashid, 2016. "Undervaluation and private equity takeovers," Australian Journal of Management, Australian School of Business, vol. 41(4), pages 735-759, November.
    • Handle: RePEc:sae:ausman:v:41:y:2016:i:4:p:735-759
    DOI: 10.1177/0312896215594465
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    References listed on IDEAS

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    More about this item

    Keywords

    Going private; private equity; valuation;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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