Shareholder Diversification and the Decision to Go Public

Posted: 7 Dec 2006

See all articles by Massimo Massa

Massimo Massa

INSEAD - Finance

Andriy Bodnaruk

University of Illinois at Chicago

Eugene Kandel

Hebrew University of Jerusalem - Department of Economics; Centre for Economic Policy Research (CEPR)

Andrei Simonov

Michigan State University - Eli Broad Graduate School of Management; Russian Presidential Academy of National Economy and Public Administration (RANEPA); Centre for Economic Policy Research (CEPR)

Multiple version iconThere are 3 versions of this paper

Abstract

We study the effects of the controlling shareholders' portfolio diversification on the IPO process. Less-diversified shareholders have more to gain from taking their firm public, and are more willing to accept a lower price for shares. We test these hypotheses using the data on all IPOs in Sweden between 1995 and 2001. Using detailed information on the portfolio composition of shareholders in private and public firms, we construct several proxies of their portfolio diversification and relate them to the probability of the IPO and the underpricing. We show that the less-diversified individual shareholders, especially those with lower wealth, sell more of their shares at the IPO. Firms held by less-diversified controlling shareholders are more likely to go public, and exhibit higher underpricing. Both effects are economically and statistically significant, while the diversification of non-controlling shareholders has no effect. These findings suggest that diversification of controlling shareholders plays a prominent role in the IPO process.

Keywords: IPO, diversification, underpricing

JEL Classification: G12, G14, G24, G32

Suggested Citation

Massa, Massimo and Bodnaruk, Andriy and Kandel, Eugene and Simonov, Andrei, Shareholder Diversification and the Decision to Go Public. Review of Financial Studies, 2007. Available at SSRN: https://ssrn.com/abstract=949831

Massimo Massa

INSEAD - Finance ( email )

Boulevard de Constance
F-77305 Fontainebleau Cedex
France
+33 1 6072 4481 (Phone)
+33 1 6072 4045 (Fax)

Andriy Bodnaruk

University of Illinois at Chicago ( email )

1200 W Harrison St
Chicago, IL 60607
United States

Eugene Kandel

Hebrew University of Jerusalem - Department of Economics ( email )

School of Business
Mount Scopus
Jerusalem 91905
Israel
+972 2 588 3137 (Phone)
+972 2 581 6071 (Fax)

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Andrei Simonov (Contact Author)

Michigan State University - Eli Broad Graduate School of Management ( email )

645 N. Shaw Lane, 321 Eppley Center
East Lansing, MI 48824-1122
United States

HOME PAGE: http://www.andreisimonov.com

Russian Presidential Academy of National Economy and Public Administration (RANEPA) ( email )

Vernadskogo Prospect 82
Moscow, 119571
Russia

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

Here is the Coronavirus
related research on SSRN

Paper statistics

Abstract Views
767
PlumX Metrics