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The Price Of Power: Valuing The Controlling Position Of Owner-Managers In French Ipo Firms

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  • Roosenboom, P.G.J.
  • Schramade, W.L.J.
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    Abstract

    Going public often creates an agency conflict between the owner-manager and minorityshareholders. This problem is especially severe in countries with poor legal investorprotection, such as France. We examine the controlling position of owner-managers inFrench IPO firms. We find that investors anticipate the increased agency conflictassociated with a lock on control and lower firm value when the owner-manager is morepowerful. Shareholder agreements in which the owner-manager agrees to share controlwith other pre-IPO owners enhance firm value. We also report that higher cash flowownership by the owner-manager is positively related to firm value when he is not in fullcontrol. Finally, we document that the large (non-pecuniary) private benefits of controlin France may motivate owner-managers to retain control after the IPO.

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    File URL: http://hdl.handle.net/1765/1921
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    Bibliographic Info

    Paper provided by Erasmus Research Institute of Management (ERIM), ERIM is the joint research institute of the Rotterdam School of Management, Erasmus University and the Erasmus School of Economics (ESE) at Erasmus University Rotterdam. in its series Research Paper with number ERS-2005-011-F&A.

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    Date of creation: 29 Mar 2005
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    Handle: RePEc:dgr:eureri:30002100

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    Web page: http://www.erim.eur.nl/

    Related research

    Keywords: Ownership structure; going public; initial public offerings (IPOs);

    This paper has been announced in the following NEP Reports:

    References

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    1. Chemla, Gilles & Habib, Michel Antoine & Ljungqvist, Alexander P, 2002. "An Analysis of Shareholder Agreements," CEPR Discussion Papers 3457, C.E.P.R. Discussion Papers.
    2. Rajan, Raghuram G. & Wulf, Julie, 2006. "Are perks purely managerial excess?," Journal of Financial Economics, Elsevier, vol. 79(1), pages 1-33, January.
    3. Lucian Arye Bebchuk, 1999. "A Rent-Protection Theory of Corporate Ownership and Control," NBER Working Papers 7203, National Bureau of Economic Research, Inc.
    4. McConnell, John J. & Servaes, Henri, 1990. "Additional evidence on equity ownership and corporate value," Journal of Financial Economics, Elsevier, vol. 27(2), pages 595-612, October.
    5. Laura Casares Field & Jonathan M. Karpoff, 2002. "Takeover Defenses of IPO Firms," Journal of Finance, American Finance Association, vol. 57(5), pages 1857-1889, October.
    6. Alexander Dyck & Luigi Zingales, 2002. "Private Benefits of Control: An International Comparison," NBER Working Papers 8711, National Bureau of Economic Research, Inc.
    7. Barth, Erling & Gulbrandsen, Trygve & Schonea, Pal, 2005. "Family ownership and productivity: the role of owner-management," Journal of Corporate Finance, Elsevier, vol. 11(1-2), pages 107-127, March.
    8. Armo Gomes & Walter Novaes, 2001. "Sharing of Control as a Corporate Governance Mechanism," Penn CARESS Working Papers 3756d78204ca49d92aaf1c17c, Penn Economics Department.
    9. Yermack, David, 2006. "Flights of fancy: Corporate jets, CEO perquisites, and inferior shareholder returns," Journal of Financial Economics, Elsevier, vol. 80(1), pages 211-242, April.
    10. Christiane Alcouffe, 2000. "Judges and CEOs: French Aspects of Corporate Governance," European Journal of Law and Economics, Springer, vol. 9(2), pages 127-143, March.
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