Ownership Structure and The Public / Private Equity Choice

Abstract

We take advantage of both the relatively high concentration of insider ownership in Australian firms, absent the dominance of founding families, and the widespread issuance of non-tradable rights to examine the heterogeneous influence of insider and monitor shareholders in shaping the firm’s public/private choice. Specifically, by focusing on determinants of the underwriting arrangements in these issues, we highlight monitoring demand, not control dilution avoidance, as the key driver of the public/private choice in this general setting of firms controlled by non-founding insiders. Results show firms with larger, more concentrated pre-issue monitor shareholdings are more likely to undertake private placements. Further, post-issue ownership changes reveal this demand dependent on pre-issue ownership concentration: While firms with low monitor concentration use private placements as a means of acquiring additional monitoring, those with higher concentration use private placements to substitute insiders for monitors, reducing the level of independent oversight.

Keywords: Equity Issuance, Private/Public Choice,Insiders, Monitors, Rights Issues

JEL Classification: G32