Financial Markets and Portfolio Management

, Volume 21, Issue 4, pp 403–424

Shareholder wealth gains through better corporate governance—The case of European LBO-transactions



We examine shareholder wealth effects in a heterogeneous sample of 115 European leveraged going private transactions from 1997 to 2005. Average abnormal returns as reaction to the LBO announcement amount to 24.20%. In cross-sectional regressions, we find that these value gains can largely be attributed to differences in corporate governance: on a macro level, abnormal returns for pre-LBO shareholders are larger in countries with a poor protection of minority shareholders. On a firm level, companies with a high pre-LBO free float and comparatively weak monitoring by shareholders tend to show high abnormal returns. Furthermore, companies that are undervalued with respect to an industry peer-group exhibit higher announcement returns, indicating that agency conflicts and/or market inefficiencies can serve as an explanation.


LBOs Corporate governance Agency theory Event study 


G 14 G 32 G 34 


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Copyright information

© Swiss Society for Financial Market Research 2007

Authors and Affiliations

  1. 1.Department of Economics / BWL1University of BonnBonnGermany
  2. 2.Aberdeen Business SchoolThe Robert Gordon UniversityAberdeenUK

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