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

Posted: 9 Nov 2009  

Peter Roosenboom

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

Willem Schramade

Erasmus University, School of Economics; NN Investment Partners

Multiple version iconThere are 3 versions of this paper

Date Written: 2006

Abstract

Once a firm has gone public, the entrepreneur oftenacts as the controlling owner and manager. An agency conflict between theowner-manager and minority shareholders can ensue. The impact of thecontrolling position of owner-managers on IPO firm value is examinedinFrance, where legal investor protection is scarce. Analysis of data on 299 IPOs on the Paris Bourse from January 1993 toDecember 1999 reveals that the relationship between firm value and theowner-manager's post-IPO cash flow ownership is positive when he or she is notin full control. The inflection point at which cash flow ownership has anegative impact on firm value varies from 50 to 60 percent. Investors are awarethat firm value decreases as the owner-manager assumes more power. By reachingan agreement with other pre-IPO shareholders, owner-managers commit to reducingtheir private benefit consumption. Such shareholder agreements enhance thevalue of the firm. (SAA)

Keywords: Firm value, Shareholders, Firm ownership, Public firms, Initial public offerings (IPO), Operator ownership, Wealth, Cash flow, Manufacturing industries, Service industries, Firm control, High technology industries

Suggested Citation

Roosenboom, Peter and Schramade, Willem, The Price of Power: Valuing the Controlling Position of Owner-Managers in French IPO Firms (2006). Journal of Corporate Finance, Vol. 12, Issue 2, p. 270-295 2006. Available at SSRN: https://ssrn.com/abstract=1502516

Peter Roosenboom (Contact Author)

Rotterdam School of Management, Erasmus University ( email )

P.O. Box 1738
Room T09-56
3000 DR Rotterdam
Netherlands
+31 10 40 82255 (Phone)

Erasmus Research Institute of Management (ERIM) ( email )

P.O. Box 1738
3000 DR Rotterdam
Netherlands

Willem Schramade

Erasmus University, School of Economics ( email )

Burgemeester Oudlaan 50
Rotterdam, 3062 PA
Netherlands
+31-10-4081507 (Phone)

NN Investment Partners ( email )

Schenkkade 65
Den Haag, 2565 AS
Netherlands

Paper statistics

Abstract Views
327