Ownership Concentration and Firm Value: New Evidence from Owner Stakes in IPOs

Forthcoming, Management Science

76 Pages Posted: 20 May 2020 Last revised: 12 Jun 2023

See all articles by Borja Larrain

Borja Larrain

Pontificia Universidad Catolica de Chile

Peter Roosenboom

Rotterdam School of Management, Erasmus University; Erasmus Research Institute of Management (ERIM)

Giorgo Sertsios

Universidad de los Andes, Chile

Francisco Urzúa I.

City University London - Bayes Business School

Date Written: June 12, 2023

Abstract

We study the relationship between ownership concentration and firm value using hand-collected
data on the stakes of owner‐managers before and after IPOs. We instrument for the reduction in stake using market returns shortly before IPOs. Short‐run market returns are plausible instruments since owners engage in market timing by selling more when prior returns are high, but high short‐run returns are unlikely to directly affect firm value years after the IPO. As predicted by agency theory, a large reduction in ownership concentration at the IPO is negatively related to valuation. Future asset growth is low when owners have low stakes.

Keywords: ownership; firm value; instrumental variables; IPOs

JEL Classification: G32; G30

Suggested Citation

Larrain, Borja and Roosenboom, Peter and Sertsios, Giorgo and Urzua, Francisco, Ownership Concentration and Firm Value: New Evidence from Owner Stakes in IPOs (June 12, 2023). Forthcoming, Management Science, Available at SSRN: https://ssrn.com/abstract=3583445 or http://dx.doi.org/10.2139/ssrn.3583445

Borja Larrain (Contact Author)

Pontificia Universidad Catolica de Chile ( email )

Ave. Vicuna Mackenna 4860, Macul
Santiago
Chile

HOME PAGE: http://sites.google.com/view/borja-larrain

Peter Roosenboom

Rotterdam School of Management, Erasmus University ( email )

P.O. Box 1738
Room T09-56
3000 DR Rotterdam
Netherlands
+31 10 40 82255 (Phone)

Erasmus Research Institute of Management (ERIM) ( email )

P.O. Box 1738
3000 DR Rotterdam
Netherlands

Giorgo Sertsios

Universidad de los Andes, Chile ( email )

Mons. Álvaro del Portillo
Las Condes
Santiago, 12.455
Chile

Francisco Urzua

City University London - Bayes Business School ( email )

United Kingdom

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