A Law and Finance Analysis of Initial Public Offerings
43 Pages Posted: 24 Jul 2000
Date Written: November 10, 2003
Is ownership concentrated because founders fear being exploited by management when ownership becomes dispersed after the IPO if minority protection is weak? Or because they value control? We find a positive relation between use of security designs that separate votes from capital and frequency of family controlled firms both in Sweden and internationally. It is not caused by differences in legal regimes or in minority protection. Since control blocks are never sold piecemeal to preserve control value, ownership remains highly concentrated. But family controlled firms trade at a discount due to misallocation of control rights to heirs that make inefficient decisions, not due to extraction of pecuniary benefits.
Keywords: Law and Finance, Initial Public Offerings, Security Design, Dual-Class Shares, Private Control, Ownership Dynamics
JEL Classification: G32
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