Is It a Curse or a Blessing for a Distressed Public Company to Go Private Voluntarily?

Abstract

We establish a search based model to investigate the impact of the delisting risk on the distressed public company’s going private decision. We distinguish between two types of going private: voluntary delisting and involuntary delisting. Our simulation results show that there exists a tight link between them. Our model indicates that for any distressed public company, selling its entire equity voluntarily to a private equity fund at a price higher than its reservation price should not be considered as a curse, but rather as a blessing when compared to the worse scenario of being delisted involuntarily by the stock exchange.