Working Paper: NBER ID: w14557
Authors: 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.
Keywords: corporate ownership; investor protection; IPO; blockholder; share issuance
JEL Codes: G3; K22
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Strong investor protection (G18) | Decrease in ownership concentration (G34) |
| Strong investor protection (G18) | Issuance of new shares (G24) |
| Issuance of new shares (G24) | Decrease in blockholder ownership (G34) |
| Growth opportunities (O49) | Issuance of new shares (G24) |
| Weak investor protection (G18) | Reliance on debt financing (G32) |
| Weak investor protection (G18) | Less overall capital raised (G19) |
| Strong investor protection (G18) | Ownership diffusion (F23) |