The real effects of disclosure in going private deals

Abstract

Going private transactions have become an area of increasing interest for regulators and policymakers. Disclosures in these transactions are subject to special Securities and Exchange Commission (SEC) rules that require management to provide detailed information to all shareholders before a general vote. We examine the role of disclosure in addressing the frictions between sellers and buyers. We find that disclosure volume is positively associated with the likelihood of closing a deal. However, disclosure volume is also positively related to the intensity of shareholders’ negotiations, which increases the likelihood of shareholder litigation. These findings suggest that disclosure has real effects on the success of going private transactions and highlight the trade-offs that buyers face when determining the volume of disclosure. The results also speak to the extent to which the SEC rules fulfill the regulator’s intent in mandating going private disclosures.