Original Shareholders Research Articles

ESOPS and the Employee Ownership Culture

The 1990s have seen a definite increase in the use of stock based compensation programs for employees at all levels. This article illustrates how the development of an employee-ownership culture, which includes the use employee stock ownership plans, has a significant impact on the original founding shareholders and the issue of control. It also explains the effectiveness of stock based incentives in increasing motivation and productivity and in achieving other corporate goals. A variety of compensation alternatives, including stock based qualified retirement programs, direct ownership alternatives and phantom stock plans, all have advantages and disadvantages, depending on the specific business situation. The utilization of a performance based compensation alternative, however, acts as a positive force for the business and its employees.

Insider Retention and Long-Run Performance in German and UK IPOs

This paper is about ownership retention in German and UK IPOs, the determinants of ownership retention and its impact on IPO long-term performance. The first part of the paper studies ownership retention by pre-IPO shareholders over a period of six years following the flotation. Second, ownership retention six years after the flotation is linked to four factors, total risk, growth rate of assets, involvement of the founder, and the existence of non-voting shares. Third, the bad long-run performance of IPOs is correlated with ownership retention. The overall evidence suggests that the bad long-term performance of IPOs, compared to the stock market as a whole, cannot be explained by agency conflicts caused by the reduction in ownership by the original shareholders.

Does ownership matter? A study of German and UK IPOs

PurposeThis paper seeks to answer the question whether control and changes in control after a firm's initial public offering (IPO) have a significant influence on firm value in two very different systems of corporate governance, i.e. Germany and the UK.Design/methodology/approachThe dynamics of post‐IPO firm performance are investigated for size‐ and industry‐matched German and UK samples.FindingsIt was found that, although the post‐IPO evolution of control in German and UK companies differs significantly, there is no significant change in their long‐run financial and operating performance. The paper concludes that the long‐run performance of IPOs is not correlated with control and ownership retention. Moreover, the results presented in the paper suggest that the poor long‐term performance of IPOs documented in empirical literature can neither be explained by potential agency conflicts arising from the reduction in control held by the original shareholders nor by a reduction in the incumbents’ control.Practical implicationsContrary to what may be expected, the involvement of the pre‐IPO shareholders in the firm after the flotation is not crucial to the firm in terms of value generation. Although a reduction in control is expected to lead to less intensive monitoring as strong blockholders are no longer present, there is still no evidence that the firm will suffer in terms of its performance over the long run.Originality/valueThe paper uses an original methodology which consists of matched samples of German and UK firms with similar initial levels of control. The paper then tracks changes in control over the six years after the IPO and links these to the levels of and changes in performance.

Market-to-book ratios, equity retention, and management ownership in Finnish initial public offerings

Using a sample of Finnish initial public offerings, we find that the fraction of equity retained by the original shareholders is significantly positively related to the market-to-brook ratio. The result is consistent with the Leland and Pyle (1977) hypothesis suggesting that the original shareholders can signal the quality of their firm by their willingness to retain equity. Moreover, we find that management ownership's association with relative firm value is significantly positive at low ownership levels but insignificant at high ownership levels. This gives some support for the agency hypothesis which suggests that corporate value is a function of managerial equity ownership.

Search and uncertainty: Determinants of the degree of underpricing of initial public offerings

This paper reexamines the issue of IPO underpricing. The behavior of each of the three decision makers involved with an IPO, the original shareholders (the firm), the underwriter, and the prospective shareholders, is modeled explicitly. Using basic maximizing behavior in the present of uncertainty, it is shown that the institutional constraint that prevents the underwriter from adjusting the going-public price in the face of under or over subscription results in expected underpricing. In addition, the analysis identifies the factors that determine the degree of underpricing. Thus, it provides a unified framework within which existing empirical results are easily and continuously interpreted.

Signaling and the Valuation of Unseasoned New Issues: A Comment

IN THE MARCH 1982 issue of this Journal, David Downes and Robert Heinkel [1] present an empirical examination of the role of signaling in the valuation of initial public offerings of common stock. For a large sample of unseasoned new issues, they examine the Leland-Pyle [2] signaling hypothesis that firm value should be positively related to the fraction of equity retained by the original shareholders. Downes and Heinkel conclude that the data are consistent with the Leland-Pyle signaling hypothesis. In this comment, I present a more complete test of the Leland-Pyle signaling model. I also present two alternative explanations for the positive empirical relation between firm value and insider holdings, which I label the agency hypothesis and the wealth effect hypothesis. I find that the testable implications of the agency hypothesis are supported, while the evidence is ambiguous with respect to the testable implications of the wealth effect and signaling hypotheses.

STOCK REPURCHASE AS A TAX‐SAVING DISTRIBUTION

Journal of Financial ResearchVolume 4, Issue 1 p. 69-79 Article STOCK REPURCHASE AS A TAX-SAVING DISTRIBUTION Dan Palmon, Dan Palmon Graduate School of Management and University College, Rutgers University–NewarkSearch for more papers by this authorUzi Yaari, Uzi Yaari Graduate School of Management and University College, Rutgers University–NewarkSearch for more papers by this author Dan Palmon, Dan Palmon Graduate School of Management and University College, Rutgers University–NewarkSearch for more papers by this authorUzi Yaari, Uzi Yaari Graduate School of Management and University College, Rutgers University–NewarkSearch for more papers by this author First published: Spring 1981 https://doi.org/10.1111/j.1475-6803.1981.tb00291.xCitations: 1Read the full textAboutPDF ToolsRequest permissionExport citationAdd to favoritesTrack citation ShareShare Give accessShare full text accessShare full-text accessPlease review our Terms and Conditions of Use and check box below to share full-text version of article.I have read and accept the Wiley Online Library Terms and Conditions of UseShareable LinkUse the link below to share a full-text version of this article with your friends and colleagues. Learn more.Copy URL Share a linkShare onFacebookTwitterLinked InRedditWechat Citing Literature Volume4, Issue1Spring 1981Pages 69-79 RelatedInformation

Stock-Split and Stock-Dividend Decisions

T he effect of stock splits and stock dividends on the market price of common shares continues to be controversial. Some investigators [11, 12, 17] suggest that stock splits and stock dividends alone are important causes of changes in the behavior of stock prices. Others [1, 2, 3, 8, 9] suggest that new stock distributions only carry or imply information about other fundamental variables, such as dividends and earnings, and that price action is attributable to expected changes in them and not to the distributions per se. When a firm has a stock split, par value is reduced and the number of shares is increased proportionally; all other accounts remain unchanged. Production efficiency is not affected since the assets are unaffected, and long-term debt and its interest charge and preferred stock and its dividend are not affected. Hence, trading on the equity and financial leverage is not changed, and finally, total equity and pro rata ownership of original shareholders remain unchanged. Thus, no reason is evident for the market value of the firm to be influenced solely by a split or stock dividend. Historical evidence, however, indicates that common stocks associated with splits and stock dividends do experience price increases during the period preceding the distribution. Price action after the distribution date is somewhat less predictable with prices continuing to increase in some ca es, and declining or remaining constant in others.