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The Evolution of Corporate Ownership After IPO: The Impact of Investor Protection

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Author Info
C. Fritz Foley
Robin Greenwood
Abstract

Recent research documents that ownership concentration is higher in countries with weak investor protection. However, drawing on panel data on corporate ownership in 34 countries between 1995 and 2006, we show this pattern does not hold for newly public firms, which tend to have concentrated ownership regardless of the level of investor protection. We show that firms in countries with strong investor protection are more likely to experience decreases in ownership concentration after listing, that these decreases appear in response to growth opportunities, and that they are associated with new share issuance. We consider the implications of these findings for financing choices and patterns in firm growth and analyze alternative explanations for the diffusion of ownership that could distort our interpretations. We conclude that ownership concentration falls as firms age following their IPO in countries with strong investor protection because firms in these countries raise capital and grow, diluting blockholders in the process.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 14557.

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Date of creation: Dec 2008
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Handle: RePEc:nbr:nberwo:14557

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G3 - Financial Economics - - Corporate Finance and Governance
K22 - Law and Economics - - Regulation and Business Law - - - Corporation and Securities Law

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