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Free Cash Flow and Stockholder Gains in Going Private Transactions
Abstract
We investigate the source of stockholder gains in going private transactions. We find support for the hypothesis advanced by Jensen that a major source of these gains is the mitigation of agency problems associated with free cash flow. Using a sample of 263 going private transactions from 1980 through 1987, our results indicate a significant relationship between undistributed cash flow and a firm's decision to go private. In addition, we find that premiums paid to stockholders are significantly related to undistributed cash flow. These results are especially strong for firms that went private between 1984 and 1987 and also for firms whose managers owned relatively little equity before the going private transaction.
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Cited by
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Schuler, D. A., Rehbein, K., & Cramer, R. D. (2002) · Academy of Management Journal · doi:10.2307/3069303 · Cited by 625
Why Do Firms Use Private Equity to Opt Out of Public Markets?
Bharath, S. T., & Dittmar, A. K. (2010) · Review of Financial Studies · doi:10.1093/rfs/hhq016 · Cited by 247
Managerial discretion, organizational structure, and corporate performance
Denis, D. J., & Denis, D. K. (1993) · Journal of Accounting and Economics · doi:10.1016/0165-4101(93)90011-4 · Cited by 123
Why do companies delist voluntarily from the stock market?
Kashefi Pour, E., & Lasfer, M. (2013) · Journal of Banking & Finance · doi:10.1016/j.jbankfin.2013.08.022 · Cited by 109
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Makrominas, M., & Yiannoulis, Y. (2021) · Accounting Forum · doi:10.1080/01559982.2021.1885253 · Cited by 13
Metadata
- Authors
- LEHN, K., & POULSEN, A.
- Venue
- The Journal of Finance
- Publisher
- Wiley
- Published
- 1989-07
- Volume
- 44
- Issue
- 3
- Pages
- 771-787
- ISSN
- 0022-1082 (ISSN-L)
- 1540-6261
- OpenAlex
- W2023445141
- Cited by
- 1,096
- References
- 0
- FWCI
- 74.34
- Type
- journal article
- Language
- en
- Open access
- closed
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- LEHN, K., & POULSEN, A. (1989). Free Cash Flow and Stockholder Gains in Going Private Transactions. The Journal of Finance. https://doi.org/10.1111/j.1540-6261.1989.tb04390.x
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Contains information from the Semantic Scholar Academic Graph Datasets, made available under the ODC Attribution License (ODC-BY 1.0).
Semantic Scholar’s data is described in: Kinney, R., et al. (2023). The Semantic Scholar Open Data Platform. arXiv:2301.10140.
