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Prediction of Ownership and Control Concentration in German and UK Initial Public Offerings

Listed author(s):
  • Goergen, M.
  • Renneboog, L.D.R.

    (Tilburg University, Center For Economic Research)

The paper investigates why the corporate landscapes of Germany and UK are so different in terms of control by analyzing ownership and control evolution in recent IPOs. We report the control evolution of a sample of size- and industry-matched German and UK companies six years subsequent to the flotation. The initial shareholders in the average German IPO lose majority control six years after going public, whereas the initial owners of UK IPOs decrease their holding to less than the majority two years after going public. Acquisitions are frequent in the UK with 35% of IPOs being taken over versus only one German sample company. Partial take-overs are common in German firms: in one third of the sample a large controlling shareholder acquires control from the existing controlling shareholder. In order to predict the state of ownership and control six years after going public, a multinomial logit model is used. We distinguish four possible states of control: the company is (i) still controlled by the shareholders who controlled the company prior to the flotation, (ii) acquired by a closely held shareholder (i.e. an individual or family), (iii) acquired by a shareholder with diffuse ownership and (iv) widely held. We find that if the founder still owns a stake at the flotation, the probability that the company will be controlled by this founder after six years is large. For risky and poorly performing German and UK companies, the odds of ending up with concentrated ultimate control increase. In the case of German IPOs, the chance of substantial control concentration augments when non-voting shares have been issued at flotation and when the company experiences a high growth rate subsequent to the IPO. Profitable, low-risk, and large companies tend to be widely held six years after being listed.

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File URL: https://pure.uvt.nl/portal/files/533572/103.pdf
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Paper provided by Tilburg University, Center for Economic Research in its series Discussion Paper with number 1999-103.

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Date of creation: 1999
Handle: RePEc:tiu:tiucen:e77b6027-aaf2-4f90-b0b1-56b3979826e8
Contact details of provider: Web page: http://center.uvt.nl

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  1. 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.
  2. Demsetz, Harold & Lehn, Kenneth, 1985. "The Structure of Corporate Ownership: Causes and Consequences," Journal of Political Economy, University of Chicago Press, vol. 93(6), pages 1155-1177, December.
  3. Agrawal, Anup & Knoeber, Charles R., 1996. "Firm Performance and Mechanisms to Control Agency Problems between Managers and Shareholders," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 31(03), pages 377-397, September.
  4. Mike Burkart & Denis Gromb & Fausto Panunzi, 1997. "Large Shareholders, Monitoring, and the Value of the Firm," The Quarterly Journal of Economics, Oxford University Press, vol. 112(3), pages 693-728.
  5. Denis, David J. & Denis, Diane K., 1994. "Majority owner-managers and organizational efficiency," Journal of Corporate Finance, Elsevier, vol. 1(1), pages 91-118, March.
  6. Anup Agrawal & Charles R. Knoeber, "undated". "Firm Performance and Mechanisms to Control Agency Problems between Managers and Shareholders (Revision of 29-94)," Rodney L. White Center for Financial Research Working Papers 8-96, Wharton School Rodney L. White Center for Financial Research.
  7. Himmelberg, Charles P. & Hubbard, R. Glenn & Palia, Darius, 1999. "Understanding the determinants of managerial ownership and the link between ownership and performance," Journal of Financial Economics, Elsevier, vol. 53(3), pages 353-384, September.
  8. Morck, Randall & Shleifer, Andrei & Vishny, Robert W., 1988. "Management ownership and market valuation," Scholarly Articles 29407535, Harvard University Department of Economics.
  9. Patrick Bolton & Ernst-Ludwig von Thadden, 1998. "Liquidity and Control: A Dynamic Theory of Corporate Ownership Structure," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 154(1), pages 177-177, March.
  10. Franks, Julian & Mayer, Colin & Renneboog, Luc, 2001. "Who Disciplines Management in Poorly Performing Companies?," Journal of Financial Intermediation, Elsevier, vol. 10(3-4), pages 209-248, July.
  11. Luigi Zingales, 1995. "Insider Ownership and the Decision to Go Public," Review of Economic Studies, Oxford University Press, vol. 62(3), pages 425-448.
  12. Brennan, M. J. & Franks, J., 1997. "Underpricing, ownership and control in initial public offerings of equity securities in the UK," Journal of Financial Economics, Elsevier, vol. 45(3), pages 391-413, September.
  13. Morck, Randall & Shleifer, Andrei & Vishny, Robert W., 1988. "Management ownership and market valuation : An empirical analysis," Journal of Financial Economics, Elsevier, vol. 20(1-2), pages 293-315, January.
  14. Anup Agrawal & Charles R. Knoeber, "undated". "Firm Performance and Mechanisms to Control Agency Problems between Managers and Shareholders (Revision of 29-94)," Rodney L. White Center for Financial Research Working Papers 08-96, Wharton School Rodney L. White Center for Financial Research.
  15. Franks, Julian & Mayer, Colin, 1998. "Bank control, takeovers and corporate governance in Germany," Journal of Banking & Finance, Elsevier, vol. 22(10-11), pages 1385-1403, October.
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