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Why Do Firms Become Widely Held? An Analysis of the Dynamics of Corporate Ownership
Author(s) -
HELWEGE JEAN,
PIRINSKY CHRISTO,
STULZ RENÉ M.
Publication year - 2007
Publication title -
the journal of finance
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 18.151
H-Index - 299
eISSN - 1540-6261
pISSN - 0022-1082
DOI - 10.1111/j.1540-6261.2007.01229.x
Subject(s) - insider , business , initial public offering , market liquidity , agency cost , cash flow , agency (philosophy) , monetary economics , insider trading , accounting , finance , shareholder , economics , corporate governance , philosophy , epistemology , political science , law
We examine the evolution of insider ownership of IPO firms from 1970 to 2001 to understand how U.S. firms become widely held. A majority of these firms has insider ownership below 20% after 10 years. Stock market performance and liquidity play an extremely important role in ownership dynamics. Firms with stocks that are highly valued, are liquid, and have performed well experience large decreases in insider ownership and become widely held. Ownership also falls for low cash flow and high capital expenditures firms. Surprisingly, variables proxying for agency costs have limited success in explaining the evolution of insider ownership.