An Empirical Analysis of Delisting through Cash-out Transactions: An overview and determinants

This paper examines the motivations for delisting through cash-out transactions in Japan. The analysis reveals three main findings. First, the introduction of the mandatory share purchase request system following the 2014 amendment to the Companies Act enabled more flexible cash-out transactions and shortened the time required for delisting. Furthermore, the choice of transaction scheme depends on the characteristics of the acquiring entity. The special controlling shareholder squeeze-out mechanism is more likely to be used when a parent company with a high pre-acquisition ownership stake (toehold) seeks to make the target company a wholly owned subsidiary, whereas share consolidation is more commonly employed in management buyouts (MBOs) and other cash-out transactions. Second, an examination of the determinants of cash-out transactions reveals that firms with poorer stock price performance prior to the announcement of a tender offer are more likely to go private through a cash-out transaction. The analysis also confirms that firms with lower managerial ownership are more likely to pursue going-private transactions. In addition, companies with a higher proportion of foreign shareholders exhibit a greater likelihood of undertaking cash-out transactions. Third, we investigate the impact of cash-out transactions on shareholder wealth by focusing on acquisition premiums. The results indicate that small firms facing greater information asymmetry and firms with substantial cash holdings tend to offer higher acquisition premiums. Furthermore, relatively higher premiums are observed in transactions utilizing the share transfer request system, which enables acquirers to secure the remaining portion of voting rights following a tender offer.