The Price of Power: Valuing the Controlling Position of Owner-Managers in French IPO Firms

Posted: 9 Nov 2009

See all articles by Peter Roosenboom

Peter Roosenboom

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

Willem Schramade

RSM Erasmus University; Sustainable Finance Factory

Multiple version iconThere are 3 versions of this paper

Date Written: 2006

Abstract

Once a firm has gone public, the entrepreneur oftenacts as the controlling owner and manager. An agency conflict between theowner-manager and minority shareholders can ensue. The impact of thecontrolling position of owner-managers on IPO firm value is examinedinFrance, where legal investor protection is scarce. Analysis of data on 299 IPOs on the Paris Bourse from January 1993 toDecember 1999 reveals that the relationship between firm value and theowner-manager's post-IPO cash flow ownership is positive when he or she is notin full control. The inflection point at which cash flow ownership has anegative impact on firm value varies from 50 to 60 percent. Investors are awarethat firm value decreases as the owner-manager assumes more power. By reachingan agreement with other pre-IPO shareholders, owner-managers commit to reducingtheir private benefit consumption. Such shareholder agreements enhance thevalue of the firm. (SAA)

Keywords: Firm value, Shareholders, Firm ownership, Public firms, Initial public offerings (IPO), Operator ownership, Wealth, Cash flow, Manufacturing industries, Service industries, Firm control, High technology industries

Suggested Citation

Roosenboom, Peter and Schramade, Willem, The Price of Power: Valuing the Controlling Position of Owner-Managers in French IPO Firms (2006). University of Illinois at Urbana-Champaign's Academy for Entrepreneurial Leadership Historical Research Reference in Entrepreneurship, Available at SSRN: https://ssrn.com/abstract=1502516

Peter Roosenboom (Contact Author)

Rotterdam School of Management, Erasmus University ( email )

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3000 DR Rotterdam
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Erasmus Research Institute of Management (ERIM) ( email )

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Willem Schramade

RSM Erasmus University ( email )

P.O. Box 1738
Room T09-53
3000 DR Rotterdam
Netherlands

Sustainable Finance Factory ( email )

18
Rotterdam, 3034 SG
0682011037 (Phone)

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