IDEAS home Printed from https://ideas.repec.org/a/eee/jfinec/v109y2013i3p661-681.html
   My bibliography  Save this article

Controlling shareholders and market timing in share issuance

Author

Listed:
  • Larrain, Borja
  • Urzúa I., Francisco

Abstract

We examine market timing in the equity issuance of firms controlled by large shareholders using a hand-collected data set of controlling shareholders' ownership stakes in Chile between 1990 and 2009. When a firm issues shares, the controlling shareholder can either maintain or change his ownership stake depending on how many of the new shares he subscribes. Issuance predicts poor future returns and is preceded by high returns, but only when the controlling shareholder's stake is significantly reduced. Consistent with market timing, the results are stronger in the absence of institutional investors and in hot issuance markets.

Suggested Citation

  • Larrain, Borja & Urzúa I., Francisco, 2013. "Controlling shareholders and market timing in share issuance," Journal of Financial Economics, Elsevier, vol. 109(3), pages 661-681.
    • Handle: RePEc:eee:jfinec:v:109:y:2013:i:3:p:661-681
    DOI: 10.1016/j.jfineco.2013.03.013
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0304405X13000937
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.jfineco.2013.03.013?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Fama, Eugene F & French, Kenneth R, 1992. "The Cross-Section of Expected Stock Returns," Journal of Finance, American Finance Association, vol. 47(2), pages 427-465, June.
    2. Simon Johnson, 2000. "Tunneling," American Economic Review, American Economic Association, vol. 90(2), pages 22-27, May.
    3. Barclay, Michael J. & Holderness, Clifford G., 1989. "Private benefits from control of public corporations," Journal of Financial Economics, Elsevier, vol. 25(2), pages 371-395, December.
    4. Stewart C. Myers & Nicholas S. Majluf, 1984. "Corporate Financing and Investment Decisions When Firms Have InformationThat Investors Do Not Have," NBER Working Papers 1396, National Bureau of Economic Research, Inc.
    5. repec:bla:jfinan:v:53:y:1998:i:6:p:1975-1999 is not listed on IDEAS
    6. Myers, Stewart C. & Majluf, Nicholas S., 1984. "Corporate financing and investment decisions when firms have information that investors do not have," Journal of Financial Economics, Elsevier, vol. 13(2), pages 187-221, June.
    7. Karl B. Diether & Christopher J. Malloy & Anna Scherbina, 2002. "Differences of Opinion and the Cross Section of Stock Returns," Journal of Finance, American Finance Association, vol. 57(5), pages 2113-2141, October.
    8. Malcolm Baker & Jeffrey Wurgler, 2000. "The Equity Share in New Issues and Aggregate Stock Returns," Journal of Finance, American Finance Association, vol. 55(5), pages 2219-2257, October.
    9. Julian Franks & Colin Mayer & Paolo Volpin & Hannes F. Wagner, 2012. "The Life Cycle of Family Ownership: International Evidence," The Review of Financial Studies, Society for Financial Studies, vol. 25(6), pages 1675-1712.
    10. Raj Chetty & Emmanuel Saez, 2005. "Dividend Taxes and Corporate Behavior: Evidence from the 2003 Dividend Tax Cut," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 120(3), pages 791-833.
    11. Hauser, Shmuel & Kraizberg, Elli & Dahan, Ruth, 2003. "Price behavior and insider trading around seasoned equity offerings: the case of majority-owned firms," Journal of Corporate Finance, Elsevier, vol. 9(2), pages 183-199, March.
    12. Barclay, Michael J & Holderness, Clifford G, 1991. "Negotiated Block Trades and Corporate Control," Journal of Finance, American Finance Association, vol. 46(3), pages 861-878, July.
    13. Frazzini, Andrea & Lamont, Owen A., 2008. "Dumb money: Mutual fund flows and the cross-section of stock returns," Journal of Financial Economics, Elsevier, vol. 88(2), pages 299-322, May.
    14. Shleifer, Andrei & Vishny, Robert W, 1986. "Large Shareholders and Corporate Control," Journal of Political Economy, University of Chicago Press, vol. 94(3), pages 461-488, June.
    15. Baker, Malcolm & Stein, Jeremy C., 2004. "Market liquidity as a sentiment indicator," Journal of Financial Markets, Elsevier, vol. 7(3), pages 271-299, June.
    16. C. Fritz Foley & Robin Greenwood, 2010. "The Evolution of Corporate Ownership after IPO: The Impact of Investor Protection," The Review of Financial Studies, Society for Financial Studies, vol. 23(3), pages 1231-1260, March.
    17. Lee, Inmoo, 1997. "Do Firms Knowingly Sell Overvalued Equity?," Journal of Finance, American Finance Association, vol. 52(4), pages 1439-1466, September.
    18. Marco Becht & Colin Mayer, 2002. "Corporate control in Europe," Revue d'économie politique, Dalloz, vol. 112(4), pages 471-498.
    19. Renée Adams & Daniel Ferreira, 2008. "One Share-One Vote: The Empirical Evidence," Review of Finance, European Finance Association, vol. 12(1), pages 51-91.
    20. Murray Carlson & Adlai Fisher & Ron Giammarino, 2010. "SEO Risk Dynamics," The Review of Financial Studies, Society for Financial Studies, vol. 23(11), pages 4026-4077, November.
    21. repec:bla:jfinan:v:59:y:2004:i:2:p:537-600 is not listed on IDEAS
    22. Eugene F. Fama & Kenneth R. French, 2008. "Dissecting Anomalies," Journal of Finance, American Finance Association, vol. 63(4), pages 1653-1678, August.
    23. Jeffrey Wurgler & Ekaterina Zhuravskaya, 2002. "Does Arbitrage Flatten Demand Curves for Stocks?," The Journal of Business, University of Chicago Press, vol. 75(4), pages 583-608, October.
    24. Chen, Joseph & Hong, Harrison & Stein, Jeremy C., 2002. "Breadth of ownership and stock returns," Journal of Financial Economics, Elsevier, vol. 66(2-3), pages 171-205.
    25. Loughran, Tim & Ritter, Jay R, 1997. "The Operating Performance of Firms Conducting Seasoned Equity Offerings," Journal of Finance, American Finance Association, vol. 52(5), pages 1823-1850, December.
    26. Urs Peyer, 2009. "The Nature and Persistence of Buyback Anomalies," The Review of Financial Studies, Society for Financial Studies, vol. 22(4), pages 1693-1745, April.
    27. Lin, Chen & Ma, Yue & Malatesta, Paul & Xuan, Yuhai, 2011. "Ownership structure and the cost of corporate borrowing," Journal of Financial Economics, Elsevier, vol. 100(1), pages 1-23, April.
    28. Jean Helwege & Christo Pirinsky & René M. Stulz, 2007. "Why Do Firms Become Widely Held? An Analysis of the Dynamics of Corporate Ownership," Journal of Finance, American Finance Association, vol. 62(3), pages 995-1028, June.
    29. Rafael La Porta & Florencio Lopez‐de‐Silanes & Andrei Shleifer & Robert W. Vishny, 2000. "Agency Problems and Dividend Policies around the World," Journal of Finance, American Finance Association, vol. 55(1), pages 1-33, February.
    30. Rafael La Porta & Florencio Lopez-de-Silanes & Andrei Shleifer & Robert W. Vishny, 1998. "Law and Finance," Journal of Political Economy, University of Chicago Press, vol. 106(6), pages 1113-1155, December.
    31. Ľuboš Pástor & Pietro Veronesi, 2005. "Rational IPO Waves," Journal of Finance, American Finance Association, vol. 60(4), pages 1713-1757, August.
    32. Jonathan Clarke & Craig Dunbar & Kathleen Kahle, 2004. "The Long-Run Performance of Secondary Equity Issues: A Test of the Windows of Opportunity Hypothesis," The Journal of Business, University of Chicago Press, vol. 77(3), pages 575-604, July.
    33. De Long, J Bradford & Andrei Shleifer & Lawrence H. Summers & Robert J. Waldmann, 1990. "Noise Trader Risk in Financial Markets," Journal of Political Economy, University of Chicago Press, vol. 98(4), pages 703-738, August.
    34. Henrik Cronqvist & Rüdiger Fahlenbrach, 2009. "Large Shareholders and Corporate Policies," The Review of Financial Studies, Society for Financial Studies, vol. 22(10), pages 3941-3976, October.
    35. Rafael La Porta & Florencio Lopez‐De‐Silanes & Andrei Shleifer, 1999. "Corporate Ownership Around the World," Journal of Finance, American Finance Association, vol. 54(2), pages 471-517, April.
    36. Eckbo, B. Espen & Masulis, Ronald W. & Norli, Oyvind, 2000. "Seasoned public offerings: resolution of the 'new issues puzzle'," Journal of Financial Economics, Elsevier, vol. 56(2), pages 251-291, May.
    37. Djankov, Simeon & La Porta, Rafael & Lopez-de-Silanes, Florencio & Shleifer, Andrei, 2008. "The law and economics of self-dealing," Journal of Financial Economics, Elsevier, vol. 88(3), pages 430-465, June.
    38. David McLean, R. & Pontiff, Jeffrey & Watanabe, Akiko, 2009. "Share issuance and cross-sectional returns: International evidence," Journal of Financial Economics, Elsevier, vol. 94(1), pages 1-17, October.
    39. Atanasov, Vladimir & Black, Bernard & Ciccotello, Conrad & Gyoshev, Stanley, 2010. "How does law affect finance? An examination of equity tunneling in Bulgaria," Journal of Financial Economics, Elsevier, vol. 96(1), pages 155-173, April.
    40. Shleifer, Andrei & Vishny, Robert W, 1997. "The Limits of Arbitrage," Journal of Finance, American Finance Association, vol. 52(1), pages 35-55, March.
    41. Robin Greenwood & Samuel G. Hanson, 2012. "Share Issuance and Factor Timing," Journal of Finance, American Finance Association, vol. 67(2), pages 761-798, April.
    42. Harrison Hong & Jeremy C. Stein, 2007. "Disagreement and the Stock Market," Journal of Economic Perspectives, American Economic Association, vol. 21(2), pages 109-128, Spring.
    43. Barca, Fabrizio & Becht, Marco (ed.), 2001. "The Control of Corporate Europe," OUP Catalogue, Oxford University Press, number 9780199247424, Decembrie.
    44. Miller, Edward M, 1977. "Risk, Uncertainty, and Divergence of Opinion," Journal of Finance, American Finance Association, vol. 32(4), pages 1151-1168, September.
    45. Jose A. Scheinkman & Wei Xiong, 2003. "Overconfidence and Speculative Bubbles," Journal of Political Economy, University of Chicago Press, vol. 111(6), pages 1183-1219, December.
    46. Kahle, Kathleen M., 2000. "Insider trading and the long-run performance of new security issues," Journal of Corporate Finance, Elsevier, vol. 6(1), pages 25-53, March.
    47. Dirk Jenter, 2005. "Market Timing and Managerial Portfolio Decisions," Journal of Finance, American Finance Association, vol. 60(4), pages 1903-1949, August.
    48. Luigi Zingales, 1995. "Insider Ownership and the Decision to Go Public," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 62(3), pages 425-448.
    49. Pontiff, Jeffrey, 2006. "Costly arbitrage and the myth of idiosyncratic risk," Journal of Accounting and Economics, Elsevier, vol. 42(1-2), pages 35-52, October.
    50. Mike Burkart & Denis Gromb & Fausto Panunzi, 1997. "Large Shareholders, Monitoring, and the Value of the Firm," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 112(3), pages 693-728.
    51. Faccio, Mara & Lang, Larry H. P., 2002. "The ultimate ownership of Western European corporations," Journal of Financial Economics, Elsevier, vol. 65(3), pages 365-395, September.
    52. Jeffrey Pontiff & Artemiza Woodgate, 2008. "Share Issuance and Cross‐sectional Returns," Journal of Finance, American Finance Association, vol. 63(2), pages 921-945, April.
    53. Almeida, Heitor & Park, Sang Yong & Subrahmanyam, Marti G. & Wolfenzon, Daniel, 2011. "The structure and formation of business groups: Evidence from Korean chaebols," Journal of Financial Economics, Elsevier, vol. 99(2), pages 447-475, February.
    54. Sanford J. Grossman & Oliver D. Hart, 1980. "Takeover Bids, the Free-Rider Problem, and the Theory of the Corporation," Bell Journal of Economics, The RAND Corporation, vol. 11(1), pages 42-64, Spring.
    55. Claessens, Stijn & Djankov, Simeon & Lang, Larry H. P., 2000. "The separation of ownership and control in East Asian Corporations," Journal of Financial Economics, Elsevier, vol. 58(1-2), pages 81-112.
    56. Belén Villalonga & Raphael Amit, 2009. "How Are U.S. Family Firms Controlled?," The Review of Financial Studies, Society for Financial Studies, vol. 22(8), pages 3047-3091, August.
    57. Larry H. P. Lang & Mara Faccio & Leslie Young, 2001. "Dividends and Expropriation," American Economic Review, American Economic Association, vol. 91(1), pages 54-78, March.
    58. Shleifer, Andrei, 1986. "Do Demand Curves for Stocks Slope Down?," Journal of Finance, American Finance Association, vol. 41(3), pages 579-590, July.
    59. B. Espen Eckbo, 2008. "Equity Issues and the Disappearing Rights Offer Phenomenon," Journal of Applied Corporate Finance, Morgan Stanley, vol. 20(4), pages 72-85, September.
    60. Marco Becht & Fabrizio Barca, 2001. "The control of corporate Europe," ULB Institutional Repository 2013/13302, ULB -- Universite Libre de Bruxelles.
    61. Clarke, Jonathan & Dunbar, Craig & Kahle, Kathleen M., 2001. "Long-Run Performance and Insider Trading in Completed and Canceled Seasoned Equity Offerings," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 36(4), pages 415-430, December.
    62. Marianne Bertrand & Sendhil Mullainathan, 2001. "Are CEOs Rewarded for Luck? The Ones Without Principals Are," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 116(3), pages 901-932.
    63. Murray Carlson & Adlai Fisher & Ron Giammarino, 2006. "Corporate Investment and Asset Price Dynamics: Implications for SEO Event Studies and Long‐Run Performance," Journal of Finance, American Finance Association, vol. 61(3), pages 1009-1034, June.
    64. repec:bla:jfinan:v:53:y:1998:i:1:p:27-64 is not listed on IDEAS
    65. Urzúa I., Francisco, 2009. "Too few dividends? Groups' tunneling through chair and board compensation," Journal of Corporate Finance, Elsevier, vol. 15(2), pages 245-256, April.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Frank, Murray Z. & Nezafat, Mahdi, 2019. "Testing the credit-market-timing hypothesis using counterfactual issuing dates," Journal of Corporate Finance, Elsevier, vol. 58(C), pages 187-207.
    2. Fang, Yuanli & Hu, Maggie & Yang, Qingsen, 2018. "Do executives benefit from shareholder disputes? Evidence from multiple large shareholders in Chinese listed firms," Journal of Corporate Finance, Elsevier, vol. 51(C), pages 275-315.
    3. Massa, Massimo & Vermaelen, Theo & Xu, Moqi, 2013. "Rights offerings, trading, and regulation: a global perspective," LSE Research Online Documents on Economics 55403, London School of Economics and Political Science, LSE Library.
    4. Lauterbach, Beni & Pajuste, Anete, 2015. "The long-term valuation effects of voluntary dual class share unifications," Journal of Corporate Finance, Elsevier, vol. 31(C), pages 171-185.
    5. Rihab Kriaa & Taher Hamza, 2021. "Control dilution of an initial owner post-IPO: the impact of characteristics of ownership structure," SN Business & Economics, Springer, vol. 1(3), pages 1-35, March.
    6. Huang, Yong & Uchida, Konari & Yu, Xuanying & Zha, Daolin, 2021. "Market timing in private equity placements: Empirical evidence from China," Pacific-Basin Finance Journal, Elsevier, vol. 69(C).
    7. Dang, Man & Nguyen, Ngoc Vu & Mazur, Mieszko & Puwanenthiren, Premkanth & Nguyen, Ngoc Thang, 2021. "Global policy uncertainty and cross-border acquisitions," The Quarterly Review of Economics and Finance, Elsevier, vol. 80(C), pages 224-235.
    8. Fried, Jesse M. & Spamann, Holger, 2020. "Cheap-stock tunneling around preemptive rights," Journal of Financial Economics, Elsevier, vol. 137(2), pages 353-370.
    9. Mu-Shun Wang, 2022. "Shareholder Disputes and Commonality in Liquidity: Evidence from the Equity Markets in China," Asia-Pacific Financial Markets, Springer;Japanese Association of Financial Economics and Engineering, vol. 29(2), pages 291-325, June.
    10. Maria Boutchkova & Diego Cueto & Angelica Gonzalez, 2022. "Test power properties of within-firm estimators of ownership and board-related explanatory variables with low time variation," Review of Quantitative Finance and Accounting, Springer, vol. 59(3), pages 1215-1269, October.
    11. Bei Lyu & Hui Chen, 2022. "Effect of Founder Control on Equity Financing and Corporate Performance-Based on Moderation of Radical Strategy," SAGE Open, , vol. 12(2), pages 21582440221, April.
    12. Urzúa Infante, F., 2014. "Essays on ownership and control," Other publications TiSEM f17a9a42-f7a7-4ffa-a95d-a, Tilburg University, School of Economics and Management.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Urzúa Infante, F., 2014. "Essays on ownership and control," Other publications TiSEM f17a9a42-f7a7-4ffa-a95d-a, Tilburg University, School of Economics and Management.
    2. Schmid, Thomas & Ampenberger, Markus & Kaserer, Christoph & Achleitner, Ann-Kristin, 2010. "Controlling shareholders and payout policy: do founding families have a special 'taste for dividends'?," CEFS Working Paper Series 2010-01, Technische Universität München (TUM), Center for Entrepreneurial and Financial Studies (CEFS).
    3. Mike Burkart & Fausto Panunzi & Andrei Shleifer, 2003. "Family Firms," Journal of Finance, American Finance Association, vol. 58(5), pages 2167-2201, October.
    4. Gur Aminadav & Elias Papaioannou, 2020. "Corporate Control around the World," Journal of Finance, American Finance Association, vol. 75(3), pages 1191-1246, June.
    5. Moshirian, Fariborz & Thi Nguyen, Thuy & Zhang, Bohui, 2022. "How does firm size explain cross-country differences in ownership concentration?," Journal of Multinational Financial Management, Elsevier, vol. 65(C).
    6. Rihab Kriaa & Taher Hamza, 2021. "Control dilution of an initial owner post-IPO: the impact of characteristics of ownership structure," SN Business & Economics, Springer, vol. 1(3), pages 1-35, March.
    7. Gutiérrez, Luis H. & Pombo, Carlos, 2009. "Corporate ownership and control contestability in emerging markets: The case of Colombia," Journal of Economics and Business, Elsevier, vol. 61(2), pages 112-139.
    8. Thomsen, Steen & Pedersen, Torben & Kvist, Hans Kurt, 2006. "Blockholder ownership: Effects on firm value in market and control based governance systems," Journal of Corporate Finance, Elsevier, vol. 12(2), pages 246-269, January.
    9. Goergen, Marc & Manjon, Miguel C. & Renneboog, Luc, 2008. "Recent developments in German corporate governance," International Review of Law and Economics, Elsevier, vol. 28(3), pages 175-193, September.
    10. Malcolm Baker & Richard S. Ruback & Jeffrey Wurgler, 2004. "Behavioral Corporate Finance: A Survey," NBER Working Papers 10863, National Bureau of Economic Research, Inc.
    11. Claessens, Stijn & Yurtoglu, B. Burcin, 2013. "Corporate governance in emerging markets: A survey," Emerging Markets Review, Elsevier, vol. 15(C), pages 1-33.
    12. Khosa,Amrinder & Ahmed,Kamran & Henry,Darren, 2019. "Ownership Structure, Related Party Transactions, and Firm Valuation," Cambridge Books, Cambridge University Press, number 9781108492195, December.
    13. Buchuk, David & Larrain, Borja & Muñoz, Francisco & Urzúa I., Francisco, 2014. "The internal capital markets of business groups: Evidence from intra-group loans," Journal of Financial Economics, Elsevier, vol. 112(2), pages 190-212.
    14. Paligorova, Teodora & Xu, Zhaoxia, 2012. "Complex ownership and capital structure," Journal of Corporate Finance, Elsevier, vol. 18(4), pages 701-716.
    15. San Martin-Reyna, J.M. & Duran-Encalada, Jorge A., 2012. "The relationship among family business, corporate governance and firm performance: Evidence from the Mexican stock exchange," Journal of Family Business Strategy, Elsevier, vol. 3(2), pages 106-117.
    16. Matt Glendening & Inder K. Khurana & Wei Wang, 2016. "The market for corporate control and dividend policies: Cross-country evidence from M&A laws," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 47(9), pages 1106-1134, December.
    17. Ariane Chapelle, 2004. "Block investments and the race for corporate control in Belgium," ULB Institutional Repository 2013/9943, ULB -- Universite Libre de Bruxelles.
    18. Mike Burkart & Samuel Lee, 2008. "One Share - One Vote: the Theory," Review of Finance, European Finance Association, vol. 12(1), pages 1-49.
    19. Riccardo Ferretti & Pierpaolo Pattitoni & Alex Castelli, 2019. "Security-voting structure and equity financing in the banking sector: ‘one head-one vote’ versus ‘one share-one vote’," Journal of Management & Governance, Springer;Accademia Italiana di Economia Aziendale (AIDEA), vol. 23(4), pages 1063-1097, December.
    20. Mário Santos & António Moreira & Elisabete Vieira, 2014. "Ownership concentration, contestability, family firms, and capital structure," Journal of Management & Governance, Springer;Accademia Italiana di Economia Aziendale (AIDEA), vol. 18(4), pages 1063-1107, November.

    More about this item

    Keywords

    Controlling shareholders; Issuance; Market timing; Ownership;
    All these keywords.

    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:jfinec:v:109:y:2013:i:3:p:661-681. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/inca/505576 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.