Do Going-Private Transactions Affect Plant Efficiency and Investment?

We examine whether constraints on public firms affect firms' efficiency by testing if going private improves plant-level productivity relative to peer control groups. We find that, despite increases in productivity after going private, there is little evidence of efficiency gains relative to pe...

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Bibliographic Details
Published in:	The Review of financial studies 2014-07, Vol.27 (7), p.1929-1976
Main Authors:	Bharath, Sreedhar, Dittmar, Amy, Sivadasan, Jagadeesh
Format:	Article
Language:	eng
Subjects:	Capital investments Control groups Corporate reorganization Decision analysis Efficiency Employment Going private Industrial plants Industrial productivity Industry Investment Investments Labor productivity Portfolio analysis Private enterprises Private equity Privatization Productivity Public enterprises Studies
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Summary:	We examine whether constraints on public firms affect firms' efficiency by testing if going private improves plant-level productivity relative to peer control groups. We find that, despite increases in productivity after going private, there is little evidence of efficiency gains relative to peer groups of plants constructed to control for industry, age, size, past productivity, and the endogeneity of the going-private decision. Going-private firms do extensively restructure their portfolio of plants, selling and closing plants more quickly than others. Our findings cast doubt on the view that public markets cause listed firms to operate plants less efficiently due to overinvestment but indicate that going private increases restructuring activity.
ISSN:	0893-9454 1465-7368