Ownership Structure and IPO Valuation

摘要

We investigate the effect of ownership structure on the valuation of initial public offerings (IPOs) in the Taiwanese market, in which many large shareholders exert control through pyramidal structures and cross shareholdings with voting rights that are in excess of cash flow rights. Our analysis of Taiwanese firms which made IPOs between 1992 and 2001 indicates that outside (minority) shareholders take into account the effect of potential expropriation by entrenched large shareholders in valuing an IPO, as a deviating voting-cash structure is negatively associated with the valuation metric of both the offer and initial aftermarket prices relative to the corresponding intrinsic value. A deviating voting-cash structure also correlates negatively with IPO underpricing, which is consistent with the hypothesis that controlling shareholders with excess voting rights have less of an incentive to underprice unseasoned shares to prevent the emergence of new blocks of shareholders. We also present evidence which indicates that the possession of higher levels of cash flow rights by the controlling shareholder is positively associated with offer price valuation, but that this positive association is weakened in aftermarket trading.