May the force be with you: Investor power and company valuations

Thomas Hellmann () and Veikko Thiele

Journal of Corporate Finance, 2022, vol. 72, issue C

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. The critical determinant is whether the insider invests above or below the pro-rata threshold. 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.

Keywords: Staged financing; Valuation; Inside investor; Market power (search for similar items in EconPapers)
JEL-codes: G32 (search for similar items in EconPapers)
Date: 2022
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0929119922000062
Full text for ScienceDirect subscribers only

Related works:
Working Paper: May the Force be With You: Investor Power and Company Valuations (2018)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:corfin:v:72:y:2022:i:c:s0929119922000062

DOI: 10.1016/j.jcorpfin.2022.102163

Access Statistics for this article

Journal of Corporate Finance is currently edited by A. Poulsen and J. Netter

More articles in Journal of Corporate Finance from Elsevier
Bibliographic data for series maintained by Catherine Liu ().