Ownership Concentration and Firm Value: New Evidence from Owner Stakes in IPOs

We study the relationship between ownership concentration and firm value using hand-collected data on the stakes of owner–managers before and after initial public offerings (IPOs). We instrument for the reduction in stake using market returns shortly before IPOs. Short-run market returns are plausible instruments because owners engage in market timing by selling more when prior returns are high, but high short-run returns are unlikely to directly affect firm value years after the IPO. As predicted by agency theory, a large reduction in ownership concentration at the IPO is negatively related to valuation. Future asset growth is low when owners have low stakes. This paper was accepted by Victoria Ivashina, finance. Funding: B. Larrain acknowledges funding from ANID/CONICYT Proyecto FONDECYT Regular [Grant 1180593]. Supplemental Material: The online appendix and data are available at https://doi.org/10.1287/mnsc.2021.01039 .