The Effects of Managerial Discretion and Corporate Control Variables on the Choice of an IPO Common Equity Structure-Edición Única

Hdl Handle:
http://hdl.handle.net/11285/572627
Title:
The Effects of Managerial Discretion and Corporate Control Variables on the Choice of an IPO Common Equity Structure-Edición Única
Authors:
Serrano Salazar, Carlos
Issue Date:
2007-05-01
Abstract:
The primary purpose of this study has been to build a regression model with the ability to predict whether a firm should go public with a dual-class or a single-class common equity structure. A dual-class IPO is the creation of two separate classes of common stock with different voting rights. There is mixed evidence in the related literature regarding the value benefits of a dual-class IPO for the corporation; therefore, it was necessary to search for a set of financial characteristics that would allow a firm to issue a dual-class IPO. I considered a final sample of 262 dual-class IPO's from 1990 to 2000 listed in the WRDS database (I eliminated Financial and utility firms to conform to the extant literature). The IPO common equity structure choice was studied from the perspectives of the degree of managerial discretion (Jung, vi Kim and Stulz, 1996) and from the firm's likelihood of acquisition (Palepu, 1986). Results showed 65% accuracy for the model's classification ability. A second purpose has been to discover whether a dual-class IPO is a value enhancing or a value destroying initiative for the firm. Statistics from 18,864 firm-year observations indicate that dual-class IPO firms' returns outperformed those of single class IPO's with regard to both three-year holding period returns and ROE terms. These results suggest that a dual-class IPO does not conform to managerial entrenchment purposes but rather to shareholder wealth maximization objectives. Agency theory predicts an adverse reaction from the market for firms that issue dual-class IPO's. Henee, this study's empirical results are not consistent with agency theory; instead, they show that dual-class firms not only have high market-to-book ratios but also yield significantly higher market returns than single-class IPO's. The implications for management are various. A firm with a set of valuable growth opportunities should issue a dual-class IPO in order to fund such investments without relinquishing control of the firm, thereby eliminating the underinvestment problem without suffering a market punishment loss. Another implication is that dual class IPO's may represent the best choice for entrepreneurs who take their firms public to fund long-run investment opportunities but do not want to lose control of the firm.
Keywords:
Variable de Discreción Administrativa; Variable de Control Corporativo; Estructura Accionaria de una OPI; Efectos
Degree Program:
Doctoral Program in Administration
Advisors:
Dr. James Seward
Committee Member / Sinodal:
Dr. Mason Carpenter; Dr. Bryan Husted; Dr. Alejandro Ibarra
Degree Level:
Doctor of Philosophy in Business Administration
School:
EGADE Business School
Campus Program:
Campus Monterrey
Discipline:
Negocios y Economía / Business & Economics
Appears in Collections:
Ciencias Sociales

Full metadata record

DC FieldValue Language
dc.contributor.advisorDr. James Sewarden
dc.contributor.authorSerrano Salazar, Carlosen
dc.date.accessioned2015-08-17T11:36:52Zen
dc.date.available2015-08-17T11:36:52Zen
dc.date.issued2007-05-01-
dc.identifier.urihttp://hdl.handle.net/11285/572627en
dc.description.abstractThe primary purpose of this study has been to build a regression model with the ability to predict whether a firm should go public with a dual-class or a single-class common equity structure. A dual-class IPO is the creation of two separate classes of common stock with different voting rights. There is mixed evidence in the related literature regarding the value benefits of a dual-class IPO for the corporation; therefore, it was necessary to search for a set of financial characteristics that would allow a firm to issue a dual-class IPO. I considered a final sample of 262 dual-class IPO's from 1990 to 2000 listed in the WRDS database (I eliminated Financial and utility firms to conform to the extant literature). The IPO common equity structure choice was studied from the perspectives of the degree of managerial discretion (Jung, vi Kim and Stulz, 1996) and from the firm's likelihood of acquisition (Palepu, 1986). Results showed 65% accuracy for the model's classification ability. A second purpose has been to discover whether a dual-class IPO is a value enhancing or a value destroying initiative for the firm. Statistics from 18,864 firm-year observations indicate that dual-class IPO firms' returns outperformed those of single class IPO's with regard to both three-year holding period returns and ROE terms. These results suggest that a dual-class IPO does not conform to managerial entrenchment purposes but rather to shareholder wealth maximization objectives. Agency theory predicts an adverse reaction from the market for firms that issue dual-class IPO's. Henee, this study's empirical results are not consistent with agency theory; instead, they show that dual-class firms not only have high market-to-book ratios but also yield significantly higher market returns than single-class IPO's. The implications for management are various. A firm with a set of valuable growth opportunities should issue a dual-class IPO in order to fund such investments without relinquishing control of the firm, thereby eliminating the underinvestment problem without suffering a market punishment loss. Another implication is that dual class IPO's may represent the best choice for entrepreneurs who take their firms public to fund long-run investment opportunities but do not want to lose control of the firm.en
dc.language.isoenen
dc.rightsOpen Accessen
dc.rights.urihttp://creativecommons.org/licenses/by-nc-nd/4.0/*
dc.titleThe Effects of Managerial Discretion and Corporate Control Variables on the Choice of an IPO Common Equity Structure-Edición Únicaen
dc.typeTesis de Doctoradoes
thesis.degree.grantorInstituto Tecnológico y de Estudios Superiores de Monterreyes
thesis.degree.levelDoctor of Philosophy in Business Administrationen
dc.contributor.committeememberDr. Mason Carpenteres
dc.contributor.committeememberDr. Bryan Hustedes
dc.contributor.committeememberDr. Alejandro Ibarraes
thesis.degree.disciplineEGADE Business Schoolen
thesis.degree.nameDoctoral Program in Administrationen
dc.subject.keywordVariable de Discreción Administrativaen
dc.subject.keywordVariable de Control Corporativoen
dc.subject.keywordEstructura Accionaria de una OPIen
dc.subject.keywordEfectosen
thesis.degree.programCampus Monterreyen
dc.subject.disciplineNegocios y Economía / Business & Economicsen
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