May the Force Be With You: Investor Power and Company Valuations

60 Pages Posted: 7 Nov 2018 Last revised: 20 Oct 2020

See all articles by Thomas F. Hellmann

Thomas F. Hellmann

University of Oxford - Said Business School; University of Oxford - Said Business School; European Corporate Governance Initiative

Veikko Thiele

Queen's University - Smith School of Business

Multiple version iconThere are 2 versions of this paper

Date Written: October 13, 2020

Abstract

This paper re-examines the role of investor power in a model of staged equity financing. It shows how the usual effect where market power reduces valuations can be reversed in later rounds. Once they become insiders, powerful investors may use their market power to increase, not decrease valuations. Even though powerful investors initially lower valuations, companies prefer to bring them inside, to leverage their power in later financing rounds. The paper generates novel predictions about valuations and investor returns. It also explains why unrealized interim returns can be fundamentally misleading.

Keywords: Staged Financing, Valuation, Inside Investor, Market Power

JEL Classification: G32

Suggested Citation

Hellmann, Thomas F. and Thiele, Veikko, May the Force Be With You: Investor Power and Company Valuations (October 13, 2020). European Corporate Governance Institute (ECGI) - Finance Working Paper No. 580/2018, Available at SSRN: https://ssrn.com/abstract=3266486 or http://dx.doi.org/10.2139/ssrn.3266486

Thomas F. Hellmann

University of Oxford - Said Business School ( email )

Park End Street
Oxford, OX1 1HP
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+44 (0)1865 288937 (Phone)

HOME PAGE: http://www.sbs.ox.ac.uk/community/people/thomas-hellmann

University of Oxford - Said Business School ( email )

Park End Street
Oxford, OX1 1HP
Great Britain
+44 (0)1865 288937 (Phone)

HOME PAGE: http://www.sbs.ox.ac.uk/community/people/thomas-hellmann

European Corporate Governance Initiative ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

Veikko Thiele (Contact Author)

Queen's University - Smith School of Business ( email )

Goodes Hall
143 Union Street
Kingston, ON K7L 3N6
Canada
+1 613 533-2783 (Phone)
+1 613-533-6589 (Fax)

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