Wealth effects of delistings announcements in Europe

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Using a European dataset of 478 delistings, the authors investigate the role of corporate governance in the short-term performance of European stocks around a delisting decision. In order to achieve this, the authors utilize the event study methodology in multiple contexts and cross-sectional regression analysis. This is particularly evident in high shareholder protection environments in a finding, related with investors’ perception of the security they experience in the particular market, as well as the afterlife of the under delisting stock and the potential of value creation or destruction. In high investor protection environments the delisting event causes negative abnormal returns both for voluntary and involuntary delistings. The authors conjecture that these delistings, whether referring to LBOs, delistings from secondary listings or BOSOs, are strategic decisions, and in this respect pre-delisting shareholders acknowledge that there is life after delisting. Under low investor protection the above holds only for involuntary ones. Companies failing to meet capital market criteria and voluntary delistings appear to have significantly smaller losses than under bankruptcy firms, on average, on the eve of the delisting event. These abnormal returns are basically affected by the firms’ financial soundness and the corporate governance level pertaining in the host market. Cross-sectional regression analysis shows also the inverse relationship between the degree of governance structures and market reaction to delistings announcements.

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    • Table 1. Distribution of delistings per year and type
    • Table 2. Average abnormal returns and cumulative average abnormal returns around delistings announcement days
    • Table 3. Average abnormal returns and cumulative average abnormal returns around delistings announcement days, based on the strength of auditing and reporting standards
    • Table 4. Average abnormal returns and cumulative average abnormal returns around delistings announcement days based on the degree of efficacy of corporate boards
    • Table 5. Average abnormal returns and cumulative average abnormal returns around delistings announcement days, based on the degree of protection of minority shareholder interests
    • Table 6. Average abnormal returns and cumulative average abnormal returns around delistings announcement days, based on the strength of investor protection
    • Table 7. Correlation between regression estimates variables
    • Table 8. Cross-sectional regression results