Market Liquidity, Investor Participation, and Managerial Autonomy: Why Do Firms Go Private?
Article first published online: 19 JUL 2008
© 2008 The American Finance Association
The Journal of Finance
Volume 63, Issue 4, pages 2013–2059, August 2008
How to Cite
BOOT, A. W. A., GOPALAN, R. and THAKOR, A. V. (2008), Market Liquidity, Investor Participation, and Managerial Autonomy: Why Do Firms Go Private?. The Journal of Finance, 63: 2013–2059. doi: 10.1111/j.1540-6261.2008.01380.x
- Issue published online: 19 JUL 2008
- Article first published online: 19 JUL 2008
We focus on public-market investor participation to analyze the firm's decision to stay public or go private. The liquidity of public ownership is both a blessing and a curse: It lowers the cost of capital, but also introduces volatility in a firm's shareholder base, exposing management to uncertainty regarding shareholder intervention in management decisions, thereby affecting the manager's perceived decision-making autonomy and curtailing managerial inputs. We extract predictions about how investor participation affects stock price level and volatility and the public firm's incentives to go private, providing a link between investor participation and firm participation in public markets.