Download This PaperOwnership Concentration and Firm Value: New Evidence from Owner Stakes in IPOs
Forthcoming, Management Science
76 Pages Posted: 20 May 2020 Last revised: 12 Jun 2023
Date Written: June 12, 2023
Abstract
We study the relationship between ownership concentration and firm value using hand-collected
data on the stakes of owner‐managers before and after IPOs. We instrument for the reduction in stake using market returns shortly before IPOs. Short‐run market returns are plausible instruments since owners engage in market timing by selling more when prior returns are high, but high short‐run returns are unlikely to directly affect firm value years after the IPO. As predicted by agency theory, a large reduction in ownership concentration at the IPO is negatively related to valuation. Future asset growth is low when owners have low stakes.
Keywords: ownership; firm value; instrumental variables; IPOs
JEL Classification: G32; G30
Suggested Citation: Suggested Citation
