Time-Series Analysis of Going-Private Transactions

Abstract

Recent corporate scandals have led to legislative and regulatory responses that significantly increase the monitoring costs and other burdens of becoming or remaining a public corporation. As a result, there has been a substantial increase in going-private transactions, particularly among smaller public companies. Acquisitions and minority equity positions that allow large corporations to join with smaller companies have also increased. The pressures to go private are not entirely new, however. This chapter offers evidence that the current wave of post-Sarbanes–Oxley (SOX) restructuring via private equity firms is not a radical shift, but a continuation of already-established relationships between drops in the broad index of publicly traded equities, and subsequent increases in going-private activity (with evidence extending back more than two decades). When publicly traded equity falls, two things make major contribution to an increase in going-private transactions:•With equity prices down, it becomes cheaper to buy back the stock.•For investors with cash reserves holding for the arrival of new opportunities, taking a company private at reduced cost offers an attractive opportunity.

The evidence also suggests, though, that the passage of SOX is associated with an increased intensity in this longer-standing relationship (in other words, SOX has strengthened the older trend).

Citation

Kim, J. (2011), "Time-Series Analysis of Going-Private Transactions", Kensinger, J.W. (Ed.) Research in Finance (Research in Finance, Vol. 27), Emerald Group Publishing Limited, Leeds, pp. 1-83. https://doi.org/10.1108/S0196-3821(2011)0000027004