The effect of ownership and control on market valuation: Evidence from initial public offerings in The Netherlands

Abstract

This study examines whether ownership and control variables influence market valuation at the time of the initial public offering (IPO). Using a sample of 118 IPOs on Euronext Amsterdam during the period 1984–2001, we find support for this conjecture. Management stock ownership, the proportion of independent supervisory directors, and board monitoring by large nonmanagement hareholders are positively related to IPO firm value. These factors are successful in reducing agency costs. We also find that supermajority management stock ownership and takeover defenses lower IPO firm value. Therefore, these mechanisms increase agency costs, resulting in a lower price that investors are willing to pay for IPO shares.