The Price of Power: Valuing the Controlling Position of Owner-Managers in French IPO Firms

43 Pages Posted: 26 Feb 2008

See all articles by Willem Schramade

Willem Schramade

Nyenrode Business University

Peter Roosenboom

Rotterdam School of Management, Erasmus University; Erasmus Research Institute of Management (ERIM)

Multiple version iconThere are 3 versions of this paper

Date Written: 29 2005 3,

Abstract

Going public often creates an agency conflict between the owner-manager and minorityshareholders. This problem is especially severe in countries with poor legal investorprotection, such as France. We examine the controlling position of owner-managers inFrench IPO firms. We find that investors anticipate the increased agency conflictassociated with a lock on control and lower firm value when the owner-manager is morepowerful. Shareholder agreements in which the owner-manager agrees to share controlwith other pre-IPO owners enhance firm value. We also report that higher cash flowownership by the owner-manager is positively related to firm value when he is not in fullcontrol. Finally, we document that the large (non-pecuniary) private benefits of controlin France may motivate owner-managers to retain control after the IPO.

Keywords: Ownership structure, initial public offerings (IPOs), going public

JEL Classification: M, G3, G32

Suggested Citation

Schramade, Willem and Roosenboom, Peter, The Price of Power: Valuing the Controlling Position of Owner-Managers in French IPO Firms (29 2005 3,). ERIM Report Series Reference No. ERS-2005-011-F&A, Available at SSRN: https://ssrn.com/abstract=1097795

Willem Schramade

Nyenrode Business University ( email )

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Peter Roosenboom (Contact Author)

Rotterdam School of Management, Erasmus University ( email )

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Erasmus Research Institute of Management (ERIM) ( email )

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