To delist or not to delist? A capital access perspective

Our study attempts to introduce a model of voluntary delisting based on firms’ borrowing capacity. In this model, we propose that a listed firm’s borrowing capacity exceeds that of a private firm only if the advantages of reduced private benefits offset the associated listing costs. We further argue that private benefits depend on the quality of financial market monitoring, which in turn is conditioned by the liquidity of a firm’s stock. Theoretical propositions were tested on a sample of 5, 526 U.S. firms from 1990 to 2020. Our estimates suggest that the lower a firm’s stock liquidity, the more likely a firm is to delist voluntarily, underscoring the critical role played by financial market monitoring in determining listing status. The implications of our results for both theory and practice are discussed.