Incentive Effects, Monitoring Mechanisms and the Market for Corporate Control: An Analysis of the Factors Affecting Public to Private Transactions in the UK

Authors

  • Charlie Weir,

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  • David Laing,

  • Mike Wright

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    • The first and second authors are from the Aberdeen Business School, The Robert Gordon University. The third author is from the Centre for Management Buy-out Research, Nottingham University Business School, University of Nottingham. (Paper received August 2003, revised and accepted June 2004)


Charlie Weir, The Aberdeen Business School, The Robert Gordon University, Garthdee Road, Aberdeen AB 10 7QE, UK.
e-mail c.weir@rgu.ac.uk

Abstract

Abstract:  This paper investigates the factors that influence the decision to change the status of a publicly quoted company to that of a private company. We find that firms that go private are more likely to have higher CEO ownership and higher institutional ownership. In relation to their board structures, firms going private tend to have more duality but there is no statistical difference in the proportion of non-executive directors. They do not show signs of having excess free cash flows but there is some evidence of lower growth opportunities. We do not find that firms going private experience a greater threat of hostile acquisition. The results are therefore consistent with incentive and monitoring explanations of going private. Calculation of the probability of going private shows that incentive effects are stronger than the monitoring effects.

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