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Ownership Structure and Performance: Evidence from the Public Float in IPOs

Journal of Banking and Finance, Forthcoming

Posted: 25 Nov 2013 Last revised: 20 Dec 2013

Allen Michel

Boston University School of Management

Jacob Oded

Tel Aviv University - Faculty of Management

Israel Shaked

Boston University School of Management

Date Written: November 17, 2013

Abstract

We investigate whether the post-IPO market performance of IPO stocks is related to the percentage of shares issued to the public, namely, the public float. We demonstrate that a non-linear relation exists between the public float and post-IPO returns. Specifically, as public float increases, long-run returns decrease for low levels of public float and increase for high levels of public float. This relation persists even after controlling for various firm characteristics. The best long-term performers are firms that sell either very little or sell most of their stock in the IPO. We suggest that the choice of public float level creates a trade-off between incentives to insiders and power granted to outsiders. This trade-off determines the non-linear relation found between the public float and long-run returns.

Keywords: IPO, Public float, Capital and ownership structure, Equity issuance, Agency problems, Corporate governance

JEL Classification: G32

Suggested Citation

Michel, Allen and Oded, Jacob and Shaked, Israel, Ownership Structure and Performance: Evidence from the Public Float in IPOs (November 17, 2013). Journal of Banking and Finance, Forthcoming. Available at SSRN: https://ssrn.com/abstract=2359323

Allen Michel

Boston University School of Management ( email )

595 Commonwealth Avenue
Boston, MA 02215
United States

Jacob Oded (Contact Author)

Tel Aviv University - Faculty of Management ( email )

Ramat Aviv
Tel-Aviv, 6997801
Israel

Israel Shaked

Boston University School of Management ( email )

595 Commonwealth Avenue
Boston, MA MA 02215
United States

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