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Undervaluation, private information, agency costs and the decision to go private


  • C. Weir
  • D. Laing
  • M. Wright


There is widespread anecdotal evidence that poor stock market performance is an important reason for taking a company private. The results support the perceived undervaluation hypothesis. The finding also applies to management buy-outs, which indicates that the management of these firms had private information. It is also found that firms going private had non-optimal governance structures, higher board and institutional ownership. The last finding is consistent with going private transactions providing institutions with a means of existing firms with poor market valuation, particularly during a time of very limited pressure from the market for corporate control.

Suggested Citation

  • C. Weir & D. Laing & M. Wright, 2005. "Undervaluation, private information, agency costs and the decision to go private," Applied Financial Economics, Taylor & Francis Journals, vol. 15(13), pages 947-961.
  • Handle: RePEc:taf:apfiec:v:15:y:2005:i:13:p:947-961 DOI: 10.1080/09603100500278221

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    References listed on IDEAS

    1. Jensen, Michael C. & Meckling, William H., 1976. "Theory of the firm: Managerial behavior, agency costs and ownership structure," Journal of Financial Economics, Elsevier, vol. 3(4), pages 305-360, October.
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    Cited by:

    1. Cumming, Douglas & Siegel, Donald S. & Wright, Mike, 2007. "Private equity, leveraged buyouts and governance," Journal of Corporate Finance, Elsevier, vol. 13(4), pages 439-460, September.
    2. Bajo, Emanuele & Barbi, Massimiliano & Bigelli, Marco & Hillier, David, 2013. "The role of institutional investors in public-to-private transactions," Journal of Banking & Finance, Elsevier, vol. 37(11), pages 4327-4336.
    3. Charlie Weir & Peter Jones & Mike Wright, 2015. "Public to private transactions, private equity and financial health in the UK: an empirical analysis of the impact of going private," Journal of Management & Governance, Springer;Accademia Italiana di Economia Aziendale (AIDEA), vol. 19(1), pages 91-112, February.
    4. Martinez, Isabelle & Serve, Stéphanie, 2011. "The delisting decision: The case of buyout offer with squeeze-out (BOSO)," International Review of Law and Economics, Elsevier, vol. 31(4), pages 228-239.
    5. Renneboog, Luc & Simons, Tomas & Wright, Mike, 2007. "Why do public firms go private in the UK? The impact of private equity investors, incentive realignment and undervaluation," Journal of Corporate Finance, Elsevier, vol. 13(4), pages 591-628, September.
    6. Belkhir, Mohamed & Boubaker, Sabri & Rouatbi, Wael, 2013. "Excess control, agency costs and the probability of going private in France," Global Finance Journal, Elsevier, vol. 24(3), pages 250-265.
    7. repec:ipg:wpaper:2014-605 is not listed on IDEAS
    8. Pierpaolo Pattitoni & Barbara Petracci & Massimo Spisni, 2015. "“Hit and Run” and “Revolving Doors”: evidence from the Italian stock market," Journal of Management & Governance, Springer;Accademia Italiana di Economia Aziendale (AIDEA), vol. 19(2), pages 285-301, May.
    9. Patricia Maria Bortolon & Annor da Silva Junior, 2015. "Delisting Brazilian Public Companies: Empirical Evidence about Corporate Governance Issues," Brazilian Business Review, Fucape Business School, vol. 0(2), pages 92-117, August.
    10. repec:ipg:wpaper:2014-591 is not listed on IDEAS
    11. Achleitner, Ann-Kristin & Andres, Christian & Betzer, André & Weir, Charlie, 2008. "Economic consequences of private equity investments on the German stock market," CEFS Working Paper Series 2008-05, Technische Universität München (TUM), Center for Entrepreneurial and Financial Studies (CEFS).
    12. Renneboog, Luc & Vansteenkiste, Cara, 2017. "Leveraged Buyouts : A Survey of the Literature," Discussion Paper 2017-015, Tilburg University, Center for Economic Research.
    13. Constant Djama & Isabelle Martinez & Stéphanie Serve, 2012. "What do we know about delistings? A survey of the literature," Post-Print hal-00937899, HAL.
    14. Kevin Levillain & Blanche Segrestin, 2016. "Entrepreneur’s Wealth vs. Firm’s Welfare: Exploring an “evergreen” governance for firm succession," Post-Print hal-01292956, HAL.

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