RFS Advance Access published online on May 27, 2009
Review of Financial Studies, doi:10.1093/rfs/hhp044
Financial Visibility and the Decision to Go Private
Federal Reserve Bank of New York, Research and Statistics Group
Federal Reserve Bank of New York, Research and Statistics Group
Send correspondence to Stavros Peristiani, Federal Reserve Bank of New York, Research and Statistics Group, Main 3, 33 Liberty Street, New York, NY 10045; telephone: 212-720-7829; fax: 212-720-8363. E-mail: steve.peristiani{at}ny.frb.org.
JEL Classification: G34
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Abstract |
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A large fraction of the companies that went private between 1990 and 2007 were fairly young public firms, often with the same management team making the crucial restructuring decisions at both the time of the initial public offering (IPO) and the buyout. This article investigates the determinants of the decision to go private over a firm's entire public life cycle. Our evidence reveals that firms with declining growth in analyst coverage, falling institutional ownership, and low stock turnover were more likely to go private and opted to do so sooner. We argue that a primary reason behind the decision of IPO firms to abandon their public listing was a failure to attract a critical mass of financial visibility and investor interest.
We would like to acknowledge the helpful comments of Paul Andre, Sridhar Arcot, Timothy Burley, Daniel Cohen, Rebel Cole, Martijn Cremers, Harry DeAngelo, Steven Drucker, Michael Fleming, David Hirshleifer, Edie Hotchkiss, Tom Martinsen, Daniel Paravisini, Henri Servaes, Rodrigo Verdi, Maya Waisman, and Ross Watts. This article also benefited from seminars at the 2006 CRSP Forum, the 2006 EFMA meetings, the 2006 London Business School Accounting Symposium, the MIT Accounting Workshop, the 2006 Rensselaer Polytechnic Institute Conference on Private Equity, the 2008 ESSEC Private Equity Conference, and at Bocconi University, DePaul University, and the Federal Reserve Bank of New York. We would also like to thank Paul Goldsmith, Michael Suher, and Vanessa Savino for valuable research assistance. The article substantially benefitted from the suggestions of the editor, Matthew Spiegel, and two anonymous referees. The views expressed in this article are those of the authors and do not necessarily represent the views of the Federal Reserve Bank of New York or the Federal Reserve System.