Hostname: page-component-586b7cd67f-rcrh6 Total loading time: 0 Render date: 2024-11-22T05:38:11.802Z Has data issue: false hasContentIssue false
  • English
  • Français

Why Do Controlling Families of Public Firms Sell Their Remaining Ownership Stake?

Published online by Cambridge University Press:  06 April 2009

Sandy Klasa
Sandy Klasa
Affiliation:
[email protected], Department of Finance, Eller College of Management, University of Arizona, Tucson, AZ 85721.
Get access Rights & Permissions [Opens in a new window]

Abstract:

I investigate what leads controlling families of publicly traded firms to sell their remaining ownership stake. The sale of a controlling stake is best explained in the context of theories of the firm related to optimal risk bearing, the separation of ownership and management expertise, the CEO succession process, and the monitoring provided by outside blockholders. A timing explanation is only marginally supported. The sale of a controlling stake is not explained by insufficient financial resources to fully invest in growth opportunities. This study offers insights into the final stage of the process in which entrepreneurs sequentially sell their firm to outside parties and also identifies the nature of costs of concentrated ownership.

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , Volume 42 , Issue 2 , June 2007 , pp. 339 - 367
Copyright
Copyright © School of Business Administration, University of Washington 2007

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

References

Anderson, R. C., and Reeb, D. M.. “Founding-Family Ownership and Firm Performance: Evidence from the S&P 500.” Journal of Finance, 58 (2003), 1301–1327.CrossRefGoogle Scholar
Baker, M., and Wurgler, J.. “The Equity Share in New Issues and Aggregate Stock Returns.” Journal of Finance, 55 (2000), 2219–2257.CrossRefGoogle Scholar
Barclay, M. J., and Holderness, C. G.. “Private Benefits from Control of Public Corporations.” Journal of Financial Economics, 25 (1989), 371–395.CrossRefGoogle Scholar
Barclay, M. J., and Holderness, C. G.. “The Law and Large-Block Trades.” Journal of Law and Economics, 35 (1992), 265–294.CrossRefGoogle Scholar
Bebchuk, L. A. “A Rent-Protection Theory of Corporate Ownership and Control.” NBER Working Paper (1999).CrossRefGoogle Scholar
Bhattacharya, U., and Ravikumar, B.. “Capital Markets and the Evolution of Family Businesses.” Journal of Business, 74 (2001), 187–220.CrossRefGoogle Scholar
Boone, A. L.; Field, L. C.; Karpoff, J. M.; and Raheja, C. G.. “The Determinants of Corporate Board Size and Composition: An Empirical Analysis.” Journal of Financial Economics (forthcoming 2007).CrossRefGoogle Scholar
Brennan, M. J., and Franks, J.. “Underpricing, Ownership and Control in Initial Public Offerings of Equity Securities in the UK.” Journal of Financial Economics, 45 (1997), 391–413.CrossRefGoogle Scholar
Brickley, J. A.; Linck, J. S.; and Coles, J. L.. “What Happens to CEOs after They Retire? New Evidence on Career Concerns, Horizon Problems, and CEO Incentives.” Journal of Financial Economics, 52 (1999), 341–377.CrossRefGoogle Scholar
Burkart, M.; Panunzi, F.; and Shleifer, A.. “Family Firms.” Journal of Finance, 58 (2003), 2167–2202.CrossRefGoogle Scholar
Cronqvist, H., and Nilsson, M.. “Agency Costs of Controlling Minority Shareholders.” Journal of Financial and Quantitative Analysis, 38 (2003), 695–719.CrossRefGoogle Scholar
DeAngelo., , , H., and DeAngelo, L.. “Managerial Ownership of Voting Rights: A Study of Public Corporations with Dual Classes of Stock.” Journal of Financial Economics, 14 (1985), 33–69.CrossRefGoogle Scholar
DeAngelo., , , H., and DeAngelo, L.. “Controlling Shareholders and the Disciplinary Role of Corporate Payout Policy: A Study of the Times Mirror Company.” Journal of Financial Economics, 56 (2000), 153–207.CrossRefGoogle Scholar
Demsetz, H., and Lehn, K.. “The Structure of Corporate Ownership: Causes and Consequences.” Journal of Political Economy, 93 (1985), 1155–1177.CrossRefGoogle Scholar
Denis, D. J.; Denis, D. K.; and Sarin, A.. “Ownership Structure and Top Executive Turnover.” Journal of Financial Economics, 45 (1997), 193–221.CrossRefGoogle Scholar
Dyck, A., and Zingales, L.. “Private Benefits of Control: An International Comparison.” Journal of Finance, 59 (2004), 537–600.CrossRefGoogle Scholar
Ellingsen, T., and Rydqvist, K.. “The Stock Market as a Screening Device and the Decision to Go Public.” Unpublished Working Paper, Stockholm School of Economics (1997).CrossRefGoogle Scholar
Fama, E. F., and Jensen, M. C., “Separation of Ownership and Control.” Journal of Law and Economics, 26 (1983), 301–326.CrossRefGoogle Scholar
Field, L. C. “Control Considerations of Newly Public Firms: The Implementation of Antitakeover Provisions and Dual Class Shares before the IPO.” Unpublished Working Paper, Pennsylvania State University (1999).CrossRefGoogle Scholar
Field, L. C., and Sheehan, D. P.. “IPO Underpricing and Outside Blockholdings.” Journal of Corporate Finance, 10 (2004), 263–280.CrossRefGoogle Scholar
Grossman, S. J., and Hart, O. D.. “One Share-One Vote and the Market for Corporate Control.” Journal of Financial Economics, 20 (1988), 175–202.CrossRefGoogle Scholar
Heckman, J. “Instrumental Variables: A Study of Implicit Behavioral Assumptions Used In Making Program Evaluations.” Journal of Human Resources, 32 (1997), 441–462.CrossRefGoogle Scholar
Heckman, J.; Ichimura, H.; and Todd, P.. “Matching as an Econometric Evaluation Estimator.” Review of Economic Studies, 65 (1988), 261–294.CrossRefGoogle Scholar
Holderness, C. G.; Kroszner, R. S.; and Sheehan, D. P.. “Were the Good Old Days That Good? Changes in Managerial Stock Ownership Since the Great Depression.” Journal of Finance, 54 (1999), 435–469.CrossRefGoogle Scholar
Holderness, C. G., and Sheehan, D. P.. “Constraints on Large-Block Shareholders.” In Concentrated Corporate Ownership, Morck, Randall, ed. National Bureau of Economic Research Conference Volume. Chicago, IL: University of Chicago Press (2000).Google Scholar
Jain, B. A., and Kini, O.. “The Post-Issue Operating Performance of IPO Firms.” Journal of Finance, 49 (1994), 1699–1726.Google Scholar
La Porta, R.; Lopez-de-Silanes, F.; and Shleifer, A.. “Corporate Ownership around the World.” Journal of Finance, 54 (1999), 471–517.CrossRefGoogle Scholar
La Porta, R.; Lopez-de-Silanes, F.; Shleifer, A.; and Vishny, R.. “Investor Protection and Corporate Governance.” Journal of Financial Economics, 58 (2000), 3–27.CrossRefGoogle Scholar
Lerner, J. “Venture Capitalists and the Decision to Go Public.” Journal of Financial Economics, 35 (1994), 293–316.CrossRefGoogle Scholar
Loughran, T., and Ritter, J. R.. “The Operating Performance of Firms Conducting Seasoned Equity Offerings.” Journal of Finance, 52 (1997), 1823–1850.CrossRefGoogle Scholar
Mello, A. S., and Parsons, J. E.. “Going Public and the Ownership Structure of the Firm.” Journal of Financial Economics, 49 (1998), 79–109.CrossRefGoogle Scholar
Mikkelson, W. H.; Partch, M. M.; and Shah, K.. “Ownership and Operating Performance of Companies That Go Public.” Journal of Financial Economics, 44 (1997), 281–307.CrossRefGoogle Scholar
Mitchell, M. L., and Mulherin, J. H.. “The Impact of Industry Shocks on Takeover and Restructuring Activity.” Journal of Financial Economics, 41 (1996), 193–229.CrossRefGoogle Scholar
Morck, R.; Shleifer, A.; and Vishny, R. W.. “Alternative Mechanisms for Corporate Control.” American Economic Review, 79 (1989), 842–852.Google Scholar
Myers, S. C., and Majluf, N. S.. “Corporate Financing and Investment Decisions When Firms Have Information That Investors Do Not Have.” Journal of Financial Economics, 13 (1984), 187–221.CrossRefGoogle Scholar
Pagano, M.; Panetta, F.; and Zingales, L.. “Why Do Companies Go Public? An Empirical Analysis.” Journal of Finance, 53 (1998), 27–64.CrossRefGoogle Scholar
Ritter, J. R. “The Long-Run Performance of Initial Public Offerings.” Journal of Finance, 46 (1991), 3–27.Google Scholar
Shivdasani, A. “Board Composition, Ownership Structure, and Hostile Takeovers.” Journal of Accounting and Economics, 16 (1993), 167–198.CrossRefGoogle Scholar
Shleifer, A., and Vishny, R.. “Large Shareholders and Corporate Control.” Journal of Political Economy, 94 (1986), 461–488.CrossRefGoogle Scholar
Villalonga, B., and Amit, R.. “How Do Family Ownership, Control, and Management Affect Firm Value?” Journal of Financial Economics, 80 (2006), 385–417.CrossRefGoogle Scholar
Walkling, R. A., and Long, M. S.. “Agency Theory, Managerial Welfare, and Takeover Bid Resistance.” Rand Journal of Economics, 15 (1984), 54–68.CrossRefGoogle Scholar
Zingales, L. “Insider Ownership and the Decision to Go Public.” Review of Economic Studies, 2 (1995), 425–448.CrossRefGoogle Scholar