Christo A. Pirinsky

Why do Firms Become Widely Held? An Analysis of the Dynamics of Corporate Ownership

We consider IPO firms from 1970 to 2001 and examine the evolution of their insider ownership over time to understand better why and how U.S. firms that become widely held do so. In our sample, a majority of firms has insider ownership below 20% after ten years. We find that a firms stock market performance and trading play an extremely important role in its insider ownership dynamics. Firms that experience large decreases in insider ownership and/or become widely held are firms with high valuations, good recent stock market performance, and liquid markets for their stocks. In contrast and surprisingly, variables suggested by agency theory have limited success in explaining the evolution of insider ownership.

The Role of Underwriter-Investor Relationships in the IPO Process

We find that in allocating initial public offerings (IPOs), underwriters favor institutions they have previously worked with. Regular investors benefit more than casual investors in IPOs through greater participation in underpriced issues. Relationship participation is more important in the distribution of IPOs with stronger demand, IPOs of less liquid firms, and deals by less reputable underwriters. Overall, our results are consistent with book-building theories of IPOs. Interestingly, for 1999–2000 we find that regular investors receive even more underpriced IPOs relative to previous years while we do not find evidence that they provide additional services in IPOs.

Social Influence in the Housing Market

We utilize the decennial U.S. Census to study social effects in housing consumption across 4 million households from 126 ethnic groups and 2,071 geographic locations in the United States. We find that the homeownership decisions within ethnic groups are locally correlated, after controlling for the homeownership rates within the group and the region. Social influence is stronger for younger, less educated, and lower-income individuals; immigrants; and Americans with ancestors from more unequal, uncertainty-avoiding, and collectivistic cultures. Our results suggest that both status and information considerations play an important role in the social comparison process in capital markets.

Did Social Interactions Fuel or Suppress the US Housing Bubble

We study the implications of social interactions for financial markets in which investors exhibit different degrees of sophistication and can influence each others beliefs through their interaction. We show that social interactions can either increase or decrease the likelihood for a financial bubble, depending on whether unsophisticated or sophisticated investors have greater social influence. We also present empirical evidence consistent with the theoretical framework from the recent housing bubble. We find that sociability promotes more conservative demand for housing and more stable real estate prices, particularly when the number of sophisticated residents in an area is high.