Demutualization: Determinants and consequences of the mutual holding company choice

We investigate the determinants and consequences of the mutual holding company (MHC) structure that allows mutual thrifts to issue stock to outside shareholders while maintaining the mutual form. Capital constrained firms with greater profit opportunities are more likely to choose a full demutualization; demonstrating that the MHC choice can be used to control for over- and under-investment costs. During periods of greater regulatory constraints, MHC firms have lower offer-day returns than full demutualizations. MHC firms are also less likely to be acquired, as the MHC structure provides protection from the market for corporate control. Demonstrating a clear preference by minority shareholders for the elimination of the MHC structure, the announcement of a second-stage conversion generates a 12% return.