Ownership Structure and The Public / Private Equity Choice
38 Pages Posted: 19 Nov 2012 Last revised: 15 Mar 2015
Date Written: February 27, 2015
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
Suggested Citation: Suggested Citation