Who's Leaving Money on the Table? Evidence from IPOs within Business Groups

34 Pages Posted: 2 Feb 2016

See all articles by Woojin Kim

Woojin Kim

Seoul National University - Business School

Chan Lim

Purdue University - Purdue University, Krannert School of Management, Students; Seoul National University - Business School

Tae Jun Yoon

Seoul National University - Business School

Date Written: January , 2016

Abstract

This paper examines how controlling shareholders of business groups may avoid the cost of IPO underpricing even when they have direct ownership interest. Based on a sample of IPOs made in Korea, we find that sale of secondary shares in general does not reduce underpricing as they do in U.S. However, we do find less underpricing or even overpricing when the offered shares are directly sold by the controlling shareholders. On the other hand, sale of secondary shares held by affiliated firms leads to negative market reaction for the selling firms, implying a direct wealth transfer from shareholders of affiliated firms to IPO subscribers. These finding suggest that minority shareholders in certain affiliated firms, or scapegoats, may bear the cost of underpricing while controlling shareholders of the business group remain effectively protected instead.

Keywords: IPO, Underpricing, Secondary Shares, Controlling Shareholders, Wealth Transfer, Korea

JEL Classification: G32, G34

Suggested Citation

Kim, Woojin and Lim, Chan and Yoon, Tae Jun, Who's Leaving Money on the Table? Evidence from IPOs within Business Groups (January , 2016). Asian Finance Association (AsianFA) 2016 Conference. Available at SSRN: https://ssrn.com/abstract=2725746

Woojin Kim (Contact Author)

Seoul National University - Business School ( email )

1 Gwanak-ro, Gwanak-gu
Seoul, 08826
Korea, Republic of (South Korea)
82-2-880-5831 (Phone)

HOME PAGE: http://cba.snu.ac.kr/en/faculty?mode=view&memberidx=60582&major=6

Chan Lim

Purdue University - Purdue University, Krannert School of Management, Students ( email )

1310 Krannert Building
West Lafayette, IN 47907-1310
United States

Seoul National University - Business School ( email )

Seoul
Korea, Republic of (South Korea)

Tae Jun Yoon

Seoul National University - Business School ( email )

Seoul
Korea, Republic of (South Korea)

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