Disproportional ownership structure and IPO long-run performance of entrepreneurial firm in China

• Main Authors: CAO, Jerry X., TIAN, Gary Gang, TANG, Vincent, WANG, Xiaoming
• Format: text
• Language: English
• Published: Institutional Knowledge at Singapore Management University 2013
• Subjects: IPO; Long-run performance; Excess control; Disproportionate ownership; Corporate governance; Entrepreneurial firms; Finance and Financial Management
• Online Access: https://ink.library.smu.edu.sg/lkcsb_research/5221; https://ink.library.smu.edu.sg/context/lkcsb_research/article/6220/viewcontent/SSRN_id2369024.pdf
• Institution: Singapore Management University

This paper examines the relationship between ownership structures and IPO long-run performance in China. Although entrepreneurial firms underperform the market in general after IPO but the poor performance is mainly caused by the IPOs with ownership control wedge. Entrepreneurial firms with one share one vote structure outperform those with ownership control wedge by 30% for 3 years post-IPO in either buy-and-hold or cumulative monthly returns. Entrepreneurial firms with excess ownership control wedge have higher frequency of undertaking value-destroying related party transactions. These findings suggest that entrepreneurial firms need to improve corporate governance such as disproportional ownership structure to better safeguard the interest of long-run shareholders