Managerial Ownership Structure and IPO Survivability

Abstract

Based on agency theory [Jensen and Meckling: 1976, Journal of Financial Economics 3: 305–360] how managerial stock ownership affects the survival of initial public offerings (IPOs) is explored in this paper. A sample of 560 IPOs listed in Taiwan is examined using the accelerated failure time model, a survival analysis technique. Insiders, the broad definition of management, are further classified into top officers and outside directors to conduct a detailed study. It is observed that the survival time of IPOs first decreases and then increases with the percentage of total insider ownership at the time of offering, forming a U-shaped relationship. Additionally, the survival time is positively affected by the officer-to-insider holding ratio. The results suggest that equity stake owned by management, particularly by top officers, of an IPO firm should be encouraged in order to reduce agency cost, and thus enhance firm survivability in the aftermarket.