Owners wishing to sell their business have a number of alternative exit routes. In a UK context, they may opt for a public sale of their shares either through the London International Stock Exchange, main market or on the AIM. Alternatively, they may choose a private sale route i.e. MBO or trade sale. This study aims to investigate the connection between the financial characteristics of firms and their choice of exit route. In particular company capital structure and valuation measures are used to discriminate between alternative exit routes and explain the rationale and factors for such segmentation in the market for corporate control. This research uses a discriminatory model to classify the preferred type of realisation route for a firm based on its financial characteristics. A classificatory accuracy better than that obtained by chance provides evidence of some segmentation of alternative disposal routes. A further aim is to consider the role of the large corporate finance advisory industry, which obtains large fees for their proficiency in disposal in the correct market. An attempt has therefore been made to see whether particular types of companies are suited to particular markets on the basis of their financial characteristics and whether this corresponds to actual outcome. We also investigate and evaluate the opportunity cost of misclassification both by the models and by the advisors. The results, in general, suggest that size and capital structure emerge as important discriminators. However, growth and working capital management were also found to contribute in discriminating between the suitability of particular companies for given exit routes. Our investigation demonstrates that discriminant (and logistic regression) models can assign cases to particular markets on the basis of financial attributes at above chance frequency and substantial valuation differences between the various markets are evident. Attention is also given to the opportunity costs involved in differences between indicated and chosen exit route. The results show that out-performing as well as under-performing misclassification errors occur and that the status of advisor seems to play a discussible role.
| Identifer | oai:union.ndltd.org:bl.uk/oai:ethos.bl.uk:632634 |
| Date | January 1999 |
| Creators | Assadi, Gholam Hossein |
| Publisher | University of Manchester |
| Source Sets | Ethos UK |
| Detected Language | English |
| Type | Electronic Thesis or Dissertation |
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