Does Ownership Matter? A Study Of German And UK IPOS

Abstract

This paper investigates whether ownership concentration and different types of large shareholders can account for differences in corporate profitability. Both univariate tests and multivariate tests are applied on a sample of German and UK initial public offerings (IPOs). It is particularly interesting to study German and UK IPOs for two reasons. First, comparing German and UK firms is beneficial in terms of a high cross-sectional variation of ownership, as both countries have financial markets characterized by different levels of ownership concentration. Most previous studies have suffered from a low cross- sectional variation. Second, analyzing IPOs over several years adds an interesting time-series variation to the study. The univariate study tests whether entrenchment by the initial large shareholder and a higher exposure to the disciplining role of the market for corporate control have any effects on a firm's financial performance. The multivariate study tests a dynamic model which relates current performance to past performance and ownership characteristics. We do not find any link between profitability and ownership and conclude that ownership is chosen in ways to maximize firm value.