A Law and Finance Analysis of Initial Public Offerings

Posted: 7 Nov 2003

See all articles by Peter Högfeldt

Peter Högfeldt

Stockholm School of Economics - Department of Finance; European Corporate Governance Institute (ECGI)

Martin Holmen

University of Gothenburg - Department of Economics; University of Gothenburg - Centre for Finance

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Abstract

Is ownership concentrated because founders fear being exploited by management when ownership becomes dispersed after the IPO if minority protection is weak? Or because they value control? We find a positive relation between use of security designs that separate votes from capital and frequency of family controlled firms both in Sweden and internationally. It is not caused by differences in legal regimes or in minority protection. Since control blocks are never sold piecemeal to preserve control value, ownership remains highly concentrated. But family controlled firms trade at a discount due to misallocation of control rights to heirs that make inefficient decisions, not due to extraction of pecuniary benefits.

Keywords: Law and Finance, Initial Public Offerings, Security Design, Dual-Class Shares, Private Control, Ownership Dynamics

JEL Classification: G32

Suggested Citation

Högfeldt, Peter and Holmen, Martin, A Law and Finance Analysis of Initial Public Offerings. Journal of Financial Intermediation, Forthcoming. Available at SSRN: https://ssrn.com/abstract=457720

Peter Högfeldt (Contact Author)

Stockholm School of Economics - Department of Finance ( email )

Box 6501
SE-113 83 Stockholm
Sweden
+46 8 7169151 (Phone)

European Corporate Governance Institute (ECGI)

c/o ECARES ULB CP 114
B-1050 Brussels
Belgium

Martin Holmen

University of Gothenburg - Department of Economics ( email )

School of Business, Economics and Law
Box 640
Gothenburg, 40530
Sweden
+46 31 786 6442 (Phone)
+46 31 7865114 (Fax)

University of Gothenburg - Centre for Finance ( email )

Box 640
Gothenburg, 403 50
Sweden

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