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Market Liquidity, Investor Participation, and Managerial Autonomy: Why Do Firms Go Private?

  • ARNOUD W. A. BOOT
  • RADHAKRISHNAN GOPALAN
  • ANJAN V. THAKOR

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. Copyright (c) 2008 The American Finance Association.

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Article provided by American Finance Association in its journal The Journal of Finance.

Volume (Year): 63 (2008)
Issue (Month): 4 (08)
Pages: 2013-2059

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Handle: RePEc:bla:jfinan:v:63:y:2008:i:4:p:2013-2059
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