Why do firms use private equity to opt out of public markets?

Sreedhar T. Bharath, Amy K. Dittmar

Research output: Contribution to journalArticle

72 Scopus citations

Abstract

We investigate how firms weigh the costs and benefits of being public in the decision to opt out of the public market and go private. We draw on previous studies of going private and on the subsequent well-developed theoretical literature on why firms go public to develop our hypotheses. We employ a comprehensive sample of going-private transactions from 1980 to 2004 in the United States and examine how these firms differ over their public life (from IPO to going private) relative to a sample of firms that went and remained public. Our results provide strong support for the importance of information and liquidity considerations in being a public firm. These factors are evident at the IPO, on average thirteen years before the going-private decision. Access to capital and control considerations become increasingly important in the choice of going private over the public life of the firm.

Original languageEnglish (US)
Pages (from-to)1771-1818
Number of pages48
JournalReview of Financial Studies
Volume23
Issue number5
DOIs
StatePublished - May 1 2010
Externally publishedYes

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ASJC Scopus subject areas

  • Accounting
  • Finance
  • Economics and Econometrics

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