Premium
Ownership Structure and IPO Valuation—Evidence from Taiwan
Author(s) -
Yeh YinHua,
Shu PeiGi,
Guo ReJin
Publication year - 2008
Publication title -
financial management
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.647
H-Index - 68
eISSN - 1755-053X
pISSN - 0046-3892
DOI - 10.1111/j.1755-053x.2008.00007.x
Subject(s) - expropriation , initial public offering , shareholder , valuation (finance) , voting , business , monetary economics , cash flow , market value , financial economics , economics , accounting , finance , corporate governance , market economy , politics , political science , law
We investigate the effect of ownership structure on initial public offering (IPO) valuation in the Taiwanese market, in which many large shareholders exert control through pyramidal structures and cross‐shareholdings with voting rights that are in excess of cash flow rights. Our analysis indicates that outside shareholders incorporate the effect of potential expropriation by entrenched large shareholders in valuing an IPO, since a deviating voting‐cash structure is negatively associated with the valuation metric at both the offer and initial secondary market prices relative to the corresponding intrinsic value. We also show that a deviating voting‐cash structure correlates negatively with IPO underpricing.