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http://ssrn.com/abstract=2236592
 
 

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The Supercharged IPO


Victor Fleischer


University of San Diego School of Law

Nancy C. Staudt


USC Gould School of Law

March 26, 2013

Vanderbilt Law Review, Forthcoming
USC CLEO Research Paper No. C13-6
USC Law Legal Studies Paper No. 13-6

Abstract:     
A new innovation on the IPO landscape has emerged in the last two decades, allowing owner-founders to extract billions of dollars from newly-public companies. These IPOs — labeled supercharged IPOs — have been the subject of widespread debate and controversy: lawyers, financial experts, journalists, and Members of Congress have all weighed in on the topic. Some have argued that supercharged IPOs are a “brilliant, just brilliant,” while others have argued they are “underhanded” and “bizarre.”

In this article, we explore the supercharged IPO and explain how and why this new deal structure differs from the more traditional IPO. We then outline various theories of financial innovation and note that the extant literature provides useful explanations for why supercharged IPOs emerged and spread so quickly across industries and geographic areas. The literature also provides support for both legitimate and opportunistic uses of the supercharged IPO.

With the help of a large-N quantitative study — the first of its kind — we investigate the adoption and diffusion of this new innovation. We find that the reason parties have begun to supercharge their IPO is not linked to a desire to steal from naïve investors, but rather for tax planning purposes. Supercharged IPOs enable both owner-founders and public investors to save substantial amounts of money in federal and state taxes. With respect to the spread of the innovation, we find that elite lawyers, especially those located in New York City, are largely responsible for the changes that we observe on the IPO landscape. We conclude our study by demonstrating how our empirical findings can be used to 1) advance the literature on innovation, 2) assist firms going public in the future, and 3) shape legal reform down the road.

Number of Pages in PDF File: 55

Keywords: financial innovation, tax, innovation, IPO

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Date posted: March 21, 2013 ; Last revised: April 4, 2013

Suggested Citation

Fleischer, Victor and Staudt, Nancy C., The Supercharged IPO (March 26, 2013). Vanderbilt Law Review, Forthcoming; USC CLEO Research Paper No. C13-6; USC Law Legal Studies Paper No. 13-6. Available at SSRN: http://ssrn.com/abstract=2236592

Contact Information

Victor Fleischer (Contact Author)
University of San Diego School of Law ( email )
5998 Alcala Park
San Diego, CA 92110-2492
United States
Nancy Christine Staudt
USC Gould School of Law ( email )
699 Exposition Boulevard
Los Angeles, CA 90089
United States
213-740-9281 (Phone)
HOME PAGE: http://lawweb.usc.edu/who/faculty/directory/contactInfo.cfm?detailID=70058

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