Why do Firms Become Widely Held? An Analysis of the Dynamics of Corporate Ownership

Helwege, Jean; Pirinsky, Christo A.; Stulz, René M.

doi:10.2139/ssrn.764685

Cited by 74 publications

(115 citation statements)

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“…There are two channels through which insider ownership can fall -through sales of shares by insiders and through issuance of new shares. Helwege, Pirinsky and Stulz (2007) argue that insider ownership in the U.S. drops for IPO firms mainly because of insider selling, whereas the increase in the number of shares outstanding is a less important effect. They further argue that when the number of shares outstanding increases, this is primarily due to the exercise of options and warrants, private equity placements, and conversion of equity securities.…”

Section: Acquisitions and Insider Ownership Dilutionmentioning

confidence: 96%

“…Helwege, Pirinsky and Stulz (2007) show that insider ownership of U.S. firms drops steadily after they go public. They find that firms with better stock market performance and a more liquid stock experience larger decreases in insider ownership and become more widely held.…”

Section: Acquisitions and Insider Ownership Dilutionmentioning

confidence: 99%

“…Given the importance of M&A activity by IPO firms, we examine whether acquisitions play a role in explaining ownership dynamics of IPO firms in the U.S. Our procedure for calculating insider ownership closely follows Helwege, Pirinsky and Stulz (2007). Like them, we obtain data on insider Panels B and C divide the sample firms according to their acquisition intensity.…”

Section: Acquisitions and Insider Ownership Dilutionmentioning

confidence: 99%

“…We closely follow the regression specifications in Helwege, Pirinsky and Stulz (2007), and supplement them to include cash and stock financed acquisition volumes as additional explanatory variables. Since cash financed acquisitions lead to ownership dilution only if they are financed by cash raised at an SEO, we use the volume of cash financed acquisitions as an explanatory variable only if there is an SEO issue six months before or six months after the announcement of a cash acquisition.…”

Section: Acquisitions and Insider Ownership Dilutionmentioning

confidence: 99%

“…Helwege, Pirinsky and Stulz (2007) document that U.S. firms become widely held after they go public and show that stock market performance and liquidity explain why firms experience a reduction in insider ownership after the IPO. We show that the acquisition appetite of IPO firms is a critical determinant of their ownership dynamics as well.…”

Section: Introductionmentioning

confidence: 99%

See 4 more Smart Citations

Going public to acquire? The acquisition motive in IPOs

Çelikyurt

Sevilir

Shivdasani

2010

Journal of Financial Economics

220

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Newly public firms make acquisitions at a torrid pace. Their large acquisition appetite reflects the concentration of IPOs in M&A intensive industries, but acquisitions by IPO firms also outpace those by mature firms in the same industry. IPO firms' acquisition activity is fueled by the initial capital infusion at the IPO and through the creation of an acquisition currency that is used to raise capital for both cash and stock financed acquisitions along with debt issuance subsequent to the IPO. IPO firms play a bigger role in the M&A process by participating as acquirers than they do as takeover targets and acquisitions are at least as important as R&D and CAPEX for their growth. The pattern of acquisition activity following an IPO is important in explaining the evolution of ownership structure of newly public firms. JEL Codes: G32, G34Address Correspondence to Anil Shivdasani * We thank Uli Hege, Chris James, Michelle Lowry, Henri Servaes, and participants at the 2008 AFA meetings, the RICAFE Conference, the ESSEC Private Equity Conference, the 2007 Jackson Hole Finance Conference, and at University of North Carolina for helpful comments. 2 IntroductionWhy do firms choose to go public? An IPO is one of the most consequential events in the life of a company, but our understanding of this decision remains incomplete. Existing theories offer several insights for why firms decide to go public. In theory, an IPO creates liquidity for the firm's shares, provides an infusion of capital to fund growth, allows insiders to cash out, provides cheaper and ongoing access to capital, facilitates the sale of the company, gives founders the ability to diversify their risk, allows venture capitalists and other early stage investors to exit their investment, and increases the transparency of the firm by subjecting it to capital market discipline. Weisbach (2008) show that financing of capital expenditures and the desire to benefit from potential overvaluation are motives for seasoned equity offerings (SEOs) and IPOs.We study a relatively unexplored motive for IPOs -the desire to make acquisitions. We conduct a number of tests to provide some insight on the determinants of post-IPO M&A activity. Our first observation is that the M&A activity of IPO firms is strongly linked to the amount of M&A activity within their industry. In other words, IPOs tend to occur in industries with high M&Aactivity. Yet, industry clustering of IPOs and M&A does not fully explain the acquisition appetite of IPO firms -by most benchmarks, IPO firms are more prolific acquirers than the mature public firms within their industry.We consider three potential avenues by which an IPO can facilitate future M&A activity and explore whether these explain the acquisition volumes by IPO firms. An IPO can allow companies to pursue M&A by providing an infusion of cash, by opening the possibility of paying for an acquisition with overvalued stock, and by resolving the uncertainty about the pre-IPO valuation of the firm and the 1 In other work, Brown, Dittmar...

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Section: Acquisitions and Insider Ownership Dilutionmentioning

confidence: 96%

Section: Acquisitions and Insider Ownership Dilutionmentioning

confidence: 99%

Section: Acquisitions and Insider Ownership Dilutionmentioning

confidence: 99%

Section: Acquisitions and Insider Ownership Dilutionmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

See 3 more Smart Citations

Going public to acquire? The acquisition motive in IPOs

Çelikyurt

Sevilir

Shivdasani

2010

Journal of Financial Economics

220

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The role of returnee executives in improving green innovation performance of Chinese manufacturing enterprises: Implications for sustainable development strategy

et al. 2019

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Environmental problems in China have attracted global attention. Grafting returnee executives' green resources to Chinese manufacturing enterprises is an effective way to solve China's sustainable development problems. This paper focuses on the impact of returnee executives and the heterogeneity of returnee and local executives on green innovation performance and the moderating effects of environmental regulation and managerial ties. The paper builds on data from 276 Chinese manufacturing

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Tender Offers versus Block Trades: Empirical Evidence

Holmén

Nivorozhkin

2012

Manage Decis Econ

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In this paper, we test whether the determinants of block trade and non‐partial tender offer probabilities differ and whether the relative magnitude of security and private benefits can explain the choice of transfer mode. We investigate the Swedish market for corporate control. The results emphasize the importance of investigating block trades and tender offers as two competing events. The proxies for private benefits of control, small controlling voting blocks, and separation of voting rights from cash flow rights are positively related to the likelihood of a block trade but negatively related to the likelihood of a non‐partial tender offer. Our results suggest that separation of voting rights from cash flow rights might limit the efficiency of the market for corporate control. The prevalence of block trades in the presence of greater private benefits of control highlights the disadvantages of this control transfer mode in terms of incentive alignment between the buyer and the remaining dispersed shareholders. Copyright © 2012 John Wiley & Sons, Ltd.

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Why do Firms Become Widely Held? An Analysis of the Dynamics of Corporate Ownership

Cited by 74 publications

References 75 publications

Going public to acquire? The acquisition motive in IPOs

Going public to acquire? The acquisition motive in IPOs

The role of returnee executives in improving green innovation performance of Chinese manufacturing enterprises: Implications for sustainable development strategy

Tender Offers versus Block Trades: Empirical Evidence

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