IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Log in (now much improved!) to save this paper

Economic consequences of private equity investments on the German stock market

Listed author(s):
  • Achleitner, Ann-Kristin
  • Andres, Christian
  • Betzer, André
  • Weir, Charlie
Registered author(s):

    This paper investigates the wealth effects of private equity (PE) investor purchases of shares in German quoted companies. It is the first study to analyze these effects for the German market which is particularly interesting due to its distinct characteristics with regard to the ownership structure of publicly listed companies and the protection of minority shareholders. We find that PE investors generate positive wealth effects for target shareholders of 5.90% around the event day (t = -1 to t = 0). In addition, we find that the wealth effects of PE investor involvement in Germany are positively related to the target's tax liabilities and degree of undervaluation and negatively related to the target's leverage and the shareholding of the second largest ownership block. The latter effect can be interpreted as a supplementary monitoring effect of the management or a monitoring effect of the largest shareholder through which private benefits of control are reduced.

    If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

    File URL: https://www.econstor.eu/bitstream/10419/48426/1/577332147.pdf
    Download Restriction: no

    Paper provided by Technische Universität München (TUM), Center for Entrepreneurial and Financial Studies (CEFS) in its series CEFS Working Paper Series with number 2008-05.

    as
    in new window

    Length:
    Date of creation: 2008
    Handle: RePEc:zbw:cefswp:200805
    Contact details of provider: Postal:
    Arcisstr. 21, 80333 München

    Fax: 089 289 25070
    Web page: http://www.cefs.de/

    More information through EDIRC

    References listed on IDEAS
    Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

    as
    in new window


    1. Barclay, Michael J. & Holderness, Clifford G., 1989. "Private benefits from control of public corporations," Journal of Financial Economics, Elsevier, vol. 25(2), pages 371-395, December.
    2. repec:hrv:faseco:30747191 is not listed on IDEAS
    3. Harrington, Scott E. & Shrider, David G., 2007. "All Events Induce Variance: Analyzing Abnormal Returns When Effects Vary across Firms," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 42(01), pages 229-256, March.
    4. Shleifer, Andrei & Vishny, Robert W, 1986. "Large Shareholders and Corporate Control," Journal of Political Economy, University of Chicago Press, vol. 94(3), pages 461-488, June.
    5. 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.
    6. Thomsen, Steen & Pedersen, Torben & Kvist, Hans Kurt, 2006. "Blockholder ownership: Effects on firm value in market and control based governance systems," Journal of Corporate Finance, Elsevier, vol. 12(2), pages 246-269, January.
    7. Mike Wright, 1998. "Venture Capital and Private Equity: A Review and Synthesis," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 25(5&6), pages 521-570.
    8. 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.
    9. Lichtenberg, Frank R. & Siegel, Donald, 1990. "The effects of leveraged buyouts on productivity and related aspects of firm behavior," Journal of Financial Economics, Elsevier, vol. 27(1), pages 165-194, September.
    10. Morck, Randall & Shleifer, Andrei & Vishny, Robert W., 1988. "Management ownership and market valuation," Scholarly Articles 29407535, Harvard University Department of Economics.
    11. Franks, Julian & Mayer, Colin, 2001. "Ownership and Control of German Corporations," Review of Financial Studies, Society for Financial Studies, vol. 14(4), pages 943-977.
    12. James G. MacKinnon, 2002. "Bootstrap inference in econometrics," Canadian Journal of Economics, Canadian Economics Association, vol. 35(4), pages 615-645, November.
    13. Zingales, Luigi, 1994. "The Value of the Voting Right: A Study of the Milan Stock Exchange Experience," Review of Financial Studies, Society for Financial Studies, vol. 7(1), pages 125-148.
    14. Halpern, Paul & Kieschnick, Robert & Rotenberg, Wendy, 1999. "On the Heterogeneity of Leveraged Going Private Transactions," Review of Financial Studies, Society for Financial Studies, vol. 12(2), pages 281-309.
    15. Tim C. Opler, 1993. "Controlling Financial Distress Costs in Leveraged Buyouts With Financial Innovations," Financial Management, Financial Management Association, vol. 22(3), Fall.
    16. 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.
    17. Wolfgang Bessler, 1999. "Equity returns, bond returns, and the equity premium in the German capital market," The European Journal of Finance, Taylor & Francis Journals, vol. 5(3), pages 186-201.
    18. McConnell, John J. & Servaes, Henri, 1990. "Additional evidence on equity ownership and corporate value," Journal of Financial Economics, Elsevier, vol. 27(2), pages 595-612, October.
    19. Marc Goergen & Luc Renneboog, 2004. "Shareholder Wealth Effects of European Domestic and Cross-border Takeover Bids," European Financial Management, European Financial Management Association, vol. 10(1), pages 9-45.
    20. Rafael La porta & Florencio Lopez-De-Silanes & Andrei Shleifer & Robert Vishny, 2002. "Investor Protection and Corporate Valuation," Journal of Finance, American Finance Association, vol. 57(3), pages 1147-1170, 06.
    21. Kaplan, Steven, 1989. "The effects of management buyouts on operating performance and value," Journal of Financial Economics, Elsevier, vol. 24(2), pages 217-254.
    22. Short, Helen & Keasey, Kevin, 1999. "Managerial ownership and the performance of firms: Evidence from the UK," Journal of Corporate Finance, Elsevier, vol. 5(1), pages 79-101, March.
    23. Boehmer, Ekkehart & Masumeci, Jim & Poulsen, Annette B., 1991. "Event-study methodology under conditions of event-induced variance," Journal of Financial Economics, Elsevier, vol. 30(2), pages 253-272, December.
    24. Cotter, James F. & Peck, Sarah W., 2001. "The structure of debt and active equity investors: The case of the buyout specialist," Journal of Financial Economics, Elsevier, vol. 59(1), pages 101-147, January.
    25. Phillippe Desbrières & Alain Schatt, 2002. "The Impacts of LBOs on the Performance of Acquired Firms: The French Case," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 29(5&6), pages 695-729.
    26. Brown, Stephen J. & Warner, Jerold B., 1985. "Using daily stock returns : The case of event studies," Journal of Financial Economics, Elsevier, vol. 14(1), pages 3-31, March.
    27. Andres, Christian, 2008. "Large shareholders and firm performance--An empirical examination of founding-family ownership," Journal of Corporate Finance, Elsevier, vol. 14(4), pages 431-445, September.
    28. Lucian Arye Bebchuk, 1999. "A Rent-Protection Theory of Corporate Ownership and Control," NBER Working Papers 7203, National Bureau of Economic Research, Inc.
    29. Morck, Randall & Shleifer, Andrei & Vishny, Robert W., 1988. "Management ownership and market valuation : An empirical analysis," Journal of Financial Economics, Elsevier, vol. 20(1-2), pages 293-315, January.
    30. Robert L. Kieschnick, Jr, 1998. "Free Cash Flow and Stockholder Gains in Going Private Transactions Revisited," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 25(1&2), pages 187-202.
    31. David Citron & Mike Wright & Rod Ball & Fred Rippington, 2003. "Secured Creditor Recovery Rates from Management Buy-outs in Distress," European Financial Management, European Financial Management Association, vol. 9(2), pages 141-161.
    32. Mike Wright & Charlie Weir & Andrew Burrows, 2007. "Irrevocable Commitments, Going Private and Private Equity," European Financial Management, European Financial Management Association, vol. 13(4), pages 757-775.
    33. Charlie Weir & Mike Wright & Louise Scholes, 2008. "Public-to-private buy-outs, distress costs and private equity," Applied Financial Economics, Taylor & Francis Journals, vol. 18(10), pages 801-819.
    34. Brown, Stephen J. & Warner, Jerold B., 1980. "Measuring security price performance," Journal of Financial Economics, Elsevier, vol. 8(3), pages 205-258, September.
    35. Sanford J. Grossman & Oliver D. Hart, 1980. "Takeover Bids, the Free-Rider Problem, and the Theory of the Corporation," Bell Journal of Economics, The RAND Corporation, vol. 11(1), pages 42-64, Spring.
    36. Easterwood, John C, et al, 1994. "Controlling the Conflict of Interest in Management Buyouts," The Review of Economics and Statistics, MIT Press, vol. 76(3), pages 512-522, August.
    37. Achleitner, Ann-Kristin & Kaserer, Christoph, 2005. "Private equity funds and hedge funds: a primer," CEFS Working Paper Series 2005-03, Technische Universität München (TUM), Center for Entrepreneurial and Financial Studies (CEFS).
    38. Lehn, Kenneth & Poulsen, Annette, 1989. " Free Cash Flow and Stockholder Gains in Going Private Transactions," Journal of Finance, American Finance Association, vol. 44(3), pages 771-787, July.
    Full references (including those not matched with items on IDEAS)

    This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

    When requesting a correction, please mention this item's handle: RePEc:zbw:cefswp:200805. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (ZBW - German National Library of Economics)

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If references are entirely missing, you can add them using this form.

    If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.