3003. Delist or not to delist? A capital access perspective
Invited abstract in session WA-7: Understanding and Measuring Risk: Macroeconomic and Financial Perspectives, stream Risk Management in Commodities and Financial Markets .
Wednesday, 8:30-10:00Room: Clarendon GR.01
Authors (first author is the speaker)
| 1. | Lucia Ludovici
|
| Social and Economic Sciences, Sapienza University of Rome | |
| 2. | Rita D'Ecclesia
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| Statistics, Sapienza University of Rome | |
| 3. | Gianluca Vagnani
|
| Sapienza Universita' di Roma |
Abstract
The voluntary delisting decision has gained attention due to its significant impact on firms' operations, market presence, and shareholder wealth. This study introduces a delisting model based on firms' pledgeable income, which depends on stock liquidity: high liquidity reduce private benefits for managers, making it more advantageous for firms to stay listed.
Our central hypothesis posits that firms may opt to delist when they face significant challenges in securing new capital infusions. Building on the framework proposed by Tirole in The Theory of Corporate Finance, we derive two key propositions.
The first proposition states that a firm is more likely to delist when the net benefits of remaining publicly traded fall below the utility derived from being privately held.
The second proposition highlights the role of stock market liquidity: higher levels of market liquidity enhance the effectiveness of external monitoring, thereby increasing the net benefits of remaining listed and reducing the incentives for voluntary delisting.
These theoretical propositions were empirically tested on a sample of 4476 U.S. firms, spanning the period from 1989 to 2023.
This paper extends the market monitoring model of Tirole and Holmstrom to delisting. While existing studies focus on the costs and benefits of being listed, this work introduces a firm-level delisting model incorporating market monitoring.
Keywords
- Control Theory
- Agent Systems
Status: accepted
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