Ownership Structure and IPO Valuation—Evidence from Taiwan |
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| Authors: | Yin-Hua Yeh Pei-Gi Shu† Re-Jin Guo‡ |
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| Institution: | Yin-Hua Yeh is a Professor of Finance at the Fu Jen Catholic University in Taiwan, Republic of China.;Pei-Gi Shu is a Professor of Finance at the Fu Jen Catholic University in Taiwan, Republic of China.;Re-Jin Guo is an Associate Professor of Finance at the University of Illinois at Chicago in Chicago, IL. |
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| Abstract: | We investigate the effect of ownership structure on initial public offering (IPO) valuation in the Taiwanese market, in which many large shareholders exert control through pyramidal structures and cross-shareholdings with voting rights that are in excess of cash flow rights. Our analysis indicates that outside shareholders incorporate the effect of potential expropriation by entrenched large shareholders in valuing an IPO, since a deviating voting-cash structure is negatively associated with the valuation metric at both the offer and initial secondary market prices relative to the corresponding intrinsic value. We also show that a deviating voting-cash structure correlates negatively with IPO underpricing. |
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