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The Intra-industry Effects of Going-Private Transactions

Author

Listed:
  • Slovin, Myron B
  • Sushka, Marie E
  • Bendeck, Yvette M

Abstract

The authors demonstrate that bids to take firms private generate significantly positive valuation effects for industry rivals of target firms. These valuation effects cannot reflect either synergy or monopoly since no consolidation of operating firms is involved in such transactions. Participation by buyout specialists in the bid does not significantly affect these gains. Bids by outsiders and bids by incumbent managers generate similar valuation effects for industry rivals. The effect on share prices of industry rivals is inversely related to the capitalized values of rival firms relative to the target firm. The authors also report valuation effects for target firms. Copyright 1991 by American Finance Association.

Suggested Citation

  • Slovin, Myron B & Sushka, Marie E & Bendeck, Yvette M, 1991. "The Intra-industry Effects of Going-Private Transactions," Journal of Finance, American Finance Association, vol. 46(4), pages 1537-1550, September.
    • Handle: RePEc:bla:jfinan:v:46:y:1991:i:4:p:1537-50
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    Citations

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    Cited by:

    1. Slovin, Myron B. & Sushka, Marie E. & Ferraro, Steven R., 1995. "A comparison of the information conveyed by equity carve-outs, spin-offs, and asset sell-offs," Journal of Financial Economics, Elsevier, vol. 37(1), pages 89-104, January.
    2. Truong, Huynh Sang & Walz, Uwe, 2022. "Spillovers of PE Investments," SAFE Working Paper Series 357, Leibniz Institute for Financial Research SAFE.
    3. Andrew Metrick & Ayako Yasuda, 2011. "Venture Capital and Other Private Equity: a Survey," European Financial Management, European Financial Management Association, vol. 17(4), pages 619-654, September.
    4. Walter, Andreas & Eisele, Florian, 2003. "Kurswertreaktionen auf die Ankündigung von Going Private : Transaktionen am deutschen Kapitalmarkt," Tübinger Diskussionsbeiträge 274, University of Tübingen, School of Business and Economics.
    5. McGilvery, Andrew & Faff, Robert & Pathan, Shams, 2012. "Competitive valuation effects of Australian IPOs," International Review of Financial Analysis, Elsevier, vol. 24(C), pages 74-83.
    6. repec:bla:finmgt:v:36:y:2007:i:2:p:1-21:2 is not listed on IDEAS
    7. Harford, Jarrad & Stanfield, Jared & Zhang, Feng, 2019. "Do insiders time management buyouts and freezeouts to buy undervalued targets?," Journal of Financial Economics, Elsevier, vol. 131(1), pages 206-231.
    8. Brown, David T. & Fee, C. Edward & Thomas, Shawn E., 2009. "Financial leverage and bargaining power with suppliers: Evidence from leveraged buyouts," Journal of Corporate Finance, Elsevier, vol. 15(2), pages 196-211, April.
    9. Boubakri, Narjess & Cosset, Jean-Claude & Grira, Jocelyn, 2017. "Sovereign wealth funds investment effects on target firms' competitors," Emerging Markets Review, Elsevier, vol. 30(C), pages 96-112.
    10. Akhigbe, Aigbe & Martin, Anna D., 2000. "Information-signaling and competitive effects of foreign acquisitions in the US," Journal of Banking & Finance, Elsevier, vol. 24(8), pages 1307-1321, August.
    11. Jeff Madura & Thanh Ngo, 2012. "Re-examination of industry effects due to withdrawn mergers," Journal of Economics and Finance, Springer;Academy of Economics and Finance, vol. 36(3), pages 613-633, July.
    12. Mitchell, Mark L. & Mulherin, J. Harold, 1996. "The impact of industry shocks on takeover and restructuring activity," Journal of Financial Economics, Elsevier, vol. 41(2), pages 193-229, June.
    13. Grupp, Marcel & Rauch, Christian & Umber, Marc P. & Walz, Uwe, 2015. "The influence of leveraged buyouts on target firms' competitors," SAFE Working Paper Series 99, Leibniz Institute for Financial Research SAFE.
    14. Florian Eisele & Andreas Walter, 2006. "Kursreaktionen auf die Ankündigung von Going Private-Transaktionen am deutschen Kapitalmarkt," Schmalenbach Journal of Business Research, Springer, vol. 58(3), pages 337-362, May.
    15. Xin Yu & Peng Zhang & Ying Zheng, 2015. "Corporate Governance, Political Connections, and Intra-Industry Effects: Evidence from Corporate Scandals in China," Financial Management, Financial Management Association International, vol. 44(1), pages 49-80, March.
    16. Chod, Jiri & Lyandres, Evgeny, 2011. "Strategic IPOs and product market competition," Journal of Financial Economics, Elsevier, vol. 100(1), pages 45-67, April.
    17. Otchere, Isaac, 2005. "Do privatized banks in middle- and low-income countries perform better than rival banks? An intra-industry analysis of bank privatization," Journal of Banking & Finance, Elsevier, vol. 29(8-9), pages 2067-2093, August.
    18. Domitilla Magni & Ottorino Morresi & Alberto Pezzi & Domenico Graziano, 2022. "Defining the Relationship Between Firm’s Performance and Delisting: Empirical Evidence of Going Private in Europe," Journal of the Knowledge Economy, Springer;Portland International Center for Management of Engineering and Technology (PICMET), vol. 13(3), pages 2584-2605, September.
    19. Bolton, Brian & Lian, Qin & Rupley, Kathleen & Zhao, Jing, 2016. "Industry contagion effects of internal control material weakness disclosures," Advances in accounting, Elsevier, vol. 34(C), pages 27-40.
    20. Carmen Cotei & Joseph Farhat, 2013. "Informational externalities of initial public offerings: Does venture capital backing matter?," Journal of Economics and Finance, Springer;Academy of Economics and Finance, vol. 37(1), pages 80-99, January.
    21. repec:bla:finmgt:v:36:y:2007:i:2:p:1-21 is not listed on IDEAS
    22. Paulo Alves & Peter Pope & Steven Young, 2009. "Cross‐border information transfers: Evidence from profit warnings issued by European firms," Accounting and Business Research, Taylor & Francis Journals, vol. 39(5), pages 449-472.
    23. Otchere, Isaac, 2007. "Does the response of competitors to privatization announcements reflect competitive or industry-wide information effects? International evidence," Journal of Empirical Finance, Elsevier, vol. 14(4), pages 523-545, September.
    24. Gygax, André F. & Otchere, Isaac, 2010. "Index composition changes and the cost of incumbency," Journal of Banking & Finance, Elsevier, vol. 34(10), pages 2500-2509, October.

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