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

Borja Larrain (), Peter Roosenboom (), Giorgo Sertsios and Francisco Urzúa I.
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Borja Larrain: Escuela de Administración and FinanceUC, Pontificia Universidad Católica de Chile, Santiago, Chile
Peter Roosenboom: Rotterdam School of Management, Erasmus University, 3062 PA Rotterdam, Netherlands

Management Science, 2024, vol. 70, issue 7, 4441-4464

Abstract: We study the relationship between ownership concentration and firm value using hand-collected data on the stakes of owner–managers before and after initial public offerings (IPOs). We instrument for the reduction in stake using market returns shortly before IPOs. Short-run market returns are plausible instruments because 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 (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:inm:ormnsc:v:70:y:2024:i:7:p:4441-4464

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