Why Do Companies Go Private in Emerging Markets? Evidence From Poland

Zusammenfassung

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In recent years the number of going private transactions has considerably increased in emerging markets. The purpose of this study is to define the financial characteristics of companies that have gone private using a dataset comprising Polish companies. By applying a probit model we were able to distinguish the difference between firms that went private and those that did not. We found that the probability of going private grew with an increase in the concentration of foreign ownership, a rise in the relative level of free cash flows, a decrease in the level of long term debt, and a decrease in the liquidity of share trading. The results obtained are important both for investors wishing to identify entities marked by a high likelihood of going private as well as for governmental authorities evaluating the methods and rationality of privatization among mature state-owned enterprises.

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Auszug

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Why Do Companies Go Private in Emerging Markets? Evidence From Poland

1. Introduction

The Warsaw Stock Exchange (WSE) in Poland was recreated in 1991 after more than fifty years of inactivity due to the second World War and the introduction of a centrally planned economy thereafter (Czerniawski 1992). Seven years after its reactivation, the first going private transaction took place. Following this transaction, dozens of going private transactions have been made to date. Thus, the logical question arises as to why this phenomenon, normally considered typical of developed markets, would occur in such a young market. The answer to this question is further exacerbated by the fact that, due to the specificity of the post-communist economy, the usefulness of theories published in the literature explaining the reasons for going private are quite clearly limited. Taking into the account the very different nature in market characteristics and institutional backgrounds among developed and emerging countries, we seek to examine this issue.

The paper is divided into six sections. section II providing a brief description of going private transactions in Poland. In section III, hypotheses are derived based on previous empirical research that explain the motives for and the characteristics of Polish going private companies. The data and methodology used are specified in section IV. By looking at the financial profile of going private companies section V provides empirical results and verifies the compliance with forecasts of the hypotheses. Finally, section VI gives a brief summary of the findings.

Empirical research conducted uses data on transactions of going private available through the end of 2004. Thus, it broadens the analytical scope of previous empirical research (results) published in Polish, as they were based on data collected over a shorter period of time (Jackowicz/Kowalewski 2004).

This paper enriches the findings of previous research in three ways. First, it adjusts explanations for going private transactions presented in earlier literature for developing markets to those conditions found in a post-communist economy. second, it tests the formu...

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