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Ownership structure and performance: Evidence from the public float in IPOs

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  • Michel, Allen
  • Oded, Jacob
  • Shaked, Israel
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    Abstract

    We investigate whether the post-IPO market performance of IPO stocks is related to the percentage of shares issued to the public, namely, the public float. We demonstrate that a non-linear relation exists between the public float and post-IPO returns. Specifically, as public float increases, long-run returns decrease for low levels of public float and increase for high levels of public float. This relation persists even after controlling for various firm characteristics. The best long-term performers are firms that sell either very little or sell most of their stock in the IPO. We suggest that the choice of public float level creates a trade-off between incentives to insiders and power granted to outsiders. This trade-off determines the non-linear relation found between the public float and long-run returns.

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    Bibliographic Info

    Article provided by Elsevier in its journal Journal of Banking & Finance.

    Volume (Year): 40 (2014)
    Issue (Month): C ()
    Pages: 54-61

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    Handle: RePEc:eee:jbfina:v:40:y:2014:i:c:p:54-61

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    Web page: http://www.elsevier.com/locate/jbf

    Related research

    Keywords: IPO; Public float; Ownership structure; Equity issuance; Agency problems;

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