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

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  • C. Weir
  • D. Laing
  • M. Wright

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.

Suggested Citation

  • C. Weir & D. Laing & M. Wright, 2005. "Undervaluation, private information, agency costs and the decision to go private," Applied Financial Economics, Taylor & Francis Journals, vol. 15(13), pages 947-961.
    • Handle: RePEc:taf:apfiec:v:15:y:2005:i:13:p:947-961
    DOI: 10.1080/09603100500278221
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    References listed on IDEAS

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    1. Kenneth Lehn & Annette Poulsen, 1989. "Free Cash Flow and Stockholder Gains in Going Private Transactions," Journal of Finance, American Finance Association, vol. 44(3), pages 771-787, July.
    2. Jensen, Michael C. & Meckling, William H., 1976. "Theory of the firm: Managerial behavior, agency costs and ownership structure," Journal of Financial Economics, Elsevier, vol. 3(4), pages 305-360, October.
    3. Robert L. Kieschnick, Jr, 1998. "Free Cash Flow and Stockholder Gains in Going Private Transactions Revisited," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 25(1&2), pages 187-202.
    4. Jay Dahya & John J. McConnell & Nickolaos G. Travlos, 2002. "The Cadbury Committee, Corporate Performance, and Top Management Turnover," Journal of Finance, American Finance Association, vol. 57(1), pages 461-483, February.
    5. Charlie Weir & David Laing & Phillip J. McKnight, 2002. "Internal and External Governance Mechanisms: Their Impact on the Performance of Large UK Public Companies," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 29(5&6), pages 579-611.
    6. repec:bla:jfinan:v:44:y:1989:i:3:p:771-87 is not listed on IDEAS
    7. Charlie Weir & David Laing & Phillip J. McKnight, 2002. "Internal and External Governance Mechanisms: Their Impact on the Performance of Large UK Public Companies," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 29(5‐6), pages 579-611.
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