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

57 Pages Posted: 7 Nov 2018 Last revised: 1 Aug 2019

See all articles by Thomas F. Hellmann

Thomas F. Hellmann

University of Oxford - Said Business School; University of Oxford - Said Business School

Veikko Thiele

Queen's University - Smith School of Business

Multiple version iconThere are 2 versions of this paper

Date Written: July 16, 2019

Abstract

This paper examines the effect 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 also makes predictions about investor returns, and issues a warning that unrealized interim returns can be misleading predictors of final realized returns when powerful investors distort interim valuations.

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 (July 16, 2019). 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
Great Britain
+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

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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