Analysis on the Economic Costs and Benefit for a Firm by Going Public,Being Public and Going Private

The objective of this study is to analyze the valuation effects and gains or losses for shareholders that result from voluntary and involuntary stock exchange delisting. Given that there is no empirical evidence for this new ruling in Germany yet, we have to rely on examining and comparing the empirical studies for other countries and periods. We analyze and compare the evidence for the US, Korea and Germany (before the new ruling). The empirical results indicate gains for shareholder in voluntary delisting in Germany (squeeze out) and in the US between 20% and 40% and small but positive effects in Korea. In contrast, the announcements of involuntary delisting significantly decreases the share price between 30% and 50% in the U.S. and even more in Korea. There was hardly any involuntary delisting in Germany but a transfer of IPOs from the “NeuerMarkt” to other market segments. Thus, at least the arguments of the German Federal Constitutional Court that delisting would not affect the monetary rights of shareholders and would not put pressure on the stock price is highly controversial given the empirical evidence from other capital markets and therefore are open for debate. We address this delisting issue in a broader context of the firm’s Going Public and Being Public decision, given that we observed fewer IPO in the US and Europe during the last decade but an increase in voluntary and involuntary delisting, resulting in less companies being public. Many scholars argue that the excessive regulation in the U.S. such as the Sarbanes-Oxley Act (SOX) are a major reason for the decline in IPO activity and for the increase in the observed going private activity in the United States and other European countries. However, besides legal arguments, there are economic explanations why the IPO activity has shifted from the US and Europe to Asia where we still observe many IPOs and listed firms