Ownership Concentration and Firm Value: New Evidence from Owner Stakes in IPOs
63 Pages Posted: 20 May 2020 Last revised: 24 Sep 2020
Date Written: March 16, 2020
We revisit the relationship between ownership concentration and firm value using hand-collected data on the stakes of owner-managers immediately before and after IPOs. We instrument for the reduction in concentration using market returns on the three months prior to the IPO. Short-run market returns are plausible instruments since owners engage in naïve market timing by selling more when prior returns are high, but high prior returns are unlikely to affect long-run firm value. As predicted by agency theory, a larger reduction in ownership concentration at the IPO is negatively related to valuation.
Keywords: ownership, agency costs, Tobin's Q, IPOs
JEL Classification: G32
Suggested Citation: Suggested Citation