Who's Leaving Money on the Table? Evidence from IPOs within Business Groups
34 Pages Posted: 2 Feb 2016
Date Written: January , 2016
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: Suggested Citation