Economic Uncertainty and Going Private Transactions: The Corporate GovernanceChannel (Job Market Paper)


I study the impact of economic uncertainty on firms’ decisions to go private. I show that firms are more likely to go private following economic uncertainty shocks, and this effect is stronger for firms with greater potential for agency conflicts: firms with dual class structure, less institutional ownership, lower asset redeployability, lower loan-to-bond ratio, and for firms in financial distress. After going private, the cost of debt decreases. To establish identification, I employ an instrumentation strategy for uncertainty using differential firms’ exposure to macro uncertainty shocks in energy, exchange rate, treasury securities and policy. These results are consistent with uncertainty exacerbating agency frictions facing public companies. To alleviate the negative impacts of uncertainty shocks, firms delist to alter their capital structures to ones that are less prone to agency frictions: ones with a small number of dominant stakeholders with aligned interests. The agency frictions are mitigated through going private, resulting in a decrease of the cost of debt.