Salim Chahine

Governance, ownership structure, and performance of IPO firms: the impact of different types of private equity investors and institutional environments

This paper examines performance effects of ownership concentration and two types of private equity investors (venture capitalists and business angels) in firms that have recently undergone an initial public offering (IPO) in the United Kingdom and France. We expand and contextualize nascent understanding of multiple agency theory by examining heterogeneity of private equity investors and by suggesting that multiple agency relationships are affected by different institutional contexts. We employ a unique, hand-collected dataset of 224 matched IPOs (112 in each country). Controlling for the endogeneity of private equity investors’ retained share ownership, we find support for the agency theory argument that concentrated ownership improves IPO’s performance. The research also shows that the two types of private equity investors have a differential impact on performance, and the legal institutions in a given country moderate this impact.

Founders, Private Equity Investors, and Underpricing in Entrepreneurial IPOs

One of the most important events in the life of an entrepreneurial firm is when it undergoes an initial public offering (IPO). Combining signaling theory with research on the role of information asymmetry in pricing of IPOs this study examines the performance outcomes of two distinct types of agency conflicts at the time of the IPO: adverse selection and moral hazard. Empirical results show a curvilinear (U–shaped) relationship between founders‘ retained equity and underpricing. This suggests that founders‘ retained ownership in an entrepreneurial IPO limits adverse selection problems and the associated IPO underpricing; however, at some point entrepreneurs‘ investment and risk become so great that entrepreneurs may no longer act rationally and moral hazard increases. Empirical findings also indicate that the retained ownership of business angels has a stronger mitigating effect on adverse selection and moral hazard problems than do venture capitalist investors.

Is CEO Duality Always Negative? An Exploration of CEO Duality and Ownership Structure in the Arab IPO Context

Our results contribute to the existing debate on the appropriate regulations for an effective and stable financial system in Arab countries. They offer policy-makers additional evidence on the positive impact of market openness to foreign shareholders. This paper examines the level and determinants of IPO underpricing in the MENA region. It provides evidence on the role played by foreign strategic owners in reducing agency conflicts and information asymmetries within an environment where firms may be affected by the cultural issues related to political ties and family involvement. Using all IPOs from January 2000 until the end of July 2007, we document an average IPO underpricing of 184.1 per cent. Underpricing is higher in IPO firms that have CEO duality. However, strategic shareholders, such as corporations and other industry-related investors, are likely to play a monitoring role whereas underpricing is found to be lower in firms with both CEO duality and strategic shareholder ownership. Moreover, the negative relation between underpricing and strategic blockholding is greater for foreign strategic ownership than it is for domestic strategic ownership. This paper examines the relationships between initial public offering (IPO) underpricing, CEO duality, and strategic ownership in 12 Arab countries of the Middle East and North Africa (MENA) region. Empirical This paper examines the relationships between initial public offering (IPO) underpricing, CEO duality, and strategic ownership in 12 Arab countries of the Middle East and North Africa (MENA) region. Using all IPOs from January 2000 until the end of July 2007, we document an average IPO underpricing of 184.1 per cent. Underpricing is higher in IPO firms that have CEO duality. However, strategic shareholders, such as corporations and other industry-related investors, are likely to play a monitoring role whereas underpricing is found to be lower in firms with both CEO duality and strategic shareholder ownership. Moreover, the negative relation between underpricing and strategic blockholding is greater for foreign strategic ownership than it is for domestic strategic ownership. This paper examines the level and determinants of IPO underpricing in the MENA region. It provides evidence on the role played by foreign strategic owners in reducing agency conflicts and information asymmetries within an environment where firms may be affected by the cultural issues related to political ties and family involvement. Our results contribute to the existing debate on the appropriate regulations for an effective and stable financial system in Arab countries. They offer policy-makers additional evidence on the positive impact of market openness to foreign shareholders.

The Effects of Information Disclosure and Board Independence on IPO Discount

This paper examines the effect of strategic information disclosure and corporate governance on the stock market performance of initial public offering (IPO) firms in France. It argues that information disclosure and board independence mitigate agency problems between the IPO firm and investors, thus reducing the IPO discount defined as the difference between the offer price and the intrinsic value of the firm. However, extensive disclosure may damage the firms competitive advantage and lead to a curvilinear (an inverted U‐shape) relationship between information disclosure and the IPO discount. Further analysis suggests that it is not necessarily the quantity of information, but rather the type of information, that causes the IPO discount to increase with the amount of disclosure.

VC Board Representation and Performance of US IPOs

This paper studies the impact of five dimensions of venture capitalist (VC) power on the likelihood of the board representation of VCs in their portfolio firms at the initial public offering (IPO) as well as the effect of the latter on IPO performance. The dimensions of VC power are based on Finkelsteins (1992) four dimensions of power which are ownership power, structural power (i.e., the VCs rank within the firms financial hierarchy), expert power (i.e., VC industry specialization), and prestige power (i.e., the number of IPOs the VC has been involved with so far). We add controlling power (i.e., how pivotal the VC is to the voted decision) to these four dimensions. We find that all five dimensions of power have a significantly positive impact on the likelihood of VC board membership. While controlling for the possible endogeneity of the latter, underpricing and the IPO premium are higher if there is VC board membership, which is consistent with both the grandstanding and management support hypotheses. Our results suggest that VCs improve IPO performance and that they do not just maintain a strong presence in better performing companies after the IPO.

Building Perceived Quality of Founder-Involved IPO Firms: Founders' Effects on Board Selection and Stock Market Performance

Research on governance has focused on large corporations, giving far less attention to smaller and younger companies especially those moving from founder–controlled start–ups to professionally managed public companies. Emphasizing founder–involved firms (i.e., firms that are floated by their original founders), this article examines interlinks between founders’ prestige and selection of inside and outside directors, and short–term performance measured in terms of IPO “underpricing.” The results provide evidence of positive association between founders’ and directors’ prestige, but there is substitution between inside and outside directors’ prestige. Top management teams external board experiences reduce IPO underpricing.

Block-holder ownership, family control and post-listing performance of French IPOs

Purpose - While advantageous, the role of family control is under-explored in finance. Family ownership can help guarantee stability of business and long-term planning. The purpose of this study is to examine whether block-holder ownership differentially affects the long-term performance of initial public offerings (IPOs), and verifies whether this effect differs between family and non-family IPOs. Design/methodology/approach - Using a sample of 163 French IPOs from 1996 to 2000, this paper examines the links between family control and the first-year market performance. It focuses on IPOs where both families and Venture Capitalists (VCs) are engaged to lock-in their shareholdings for a period of one year following the IPO date, and are thus expected, at least in the case of families, to provide an effective monitoring during this period. Findings - The main findings bring support to the entrenchment hypothesis and show a negative, but weak, relationship between block-holder ownership and the first year market performance ( Originality/value - While most of prior research focuses on the association between ownership and governance effects on firms’ performances in publicly-owned firms, this study demonstrates links between family control and performance in issuing firms operating in France, where family-controlled IPOs are a common model of corporate governance.

Media News and Earnings Management Prior to Equity Offerings

We examine whether media news reflect the extent to which issuing firms manage their earnings prior to their equity carve-outs (ECOs). We posit that managers will strategically respond to media requests prior to their equity offerings in order to signal their type and differentiate themselves from others. We find that media news at the time of the ECO is negatively related to earnings management during the year prior to the ECO date. However, when we examine the nature of media news (informative vs uninformative), we find that earnings management is negatively (positively) related to informative (uninformative) media news. Moreover, while price revision is positively related to both informative and uninformative media news, ECO underpricing is positively related to uninformative media news and negatively related to informative media news. This suggests that uninformative news induces investor sentiment during the first day of trading, whereas informative news reduces the asymmetric information between issuing firms and outside investors. Consistently, we document that long-run ECO performance decreases with earnings management and uninformative news, but is positively related to informative news. Our results highlight the importance of the nature of news in media coverage for issuers seeking to differentiate themselves from those managing their earnings prior to equity offerings, evidence consistent with signaling.

Trust, Owner Rights, Employee Rights and Firm Performance

This is a study of variations in trust relationships according to institutional setting. A wide body of comparative institutional literature within economics and finance engages with trust. However, as most of this literature uses macro-level data and/or stylistic ideal types, it normally neglects intra-firm trust. This paper redresses this lacuna by using both macro-level data and comparative firm-level evidence. We found that both country trust and firm trust increase firm performance, but that there is a trade-off between the two as high levels of both reduce performance. Finally, both employee rights and investor rights are negatively correlated with country trust.

Corporate governance and the external monitoring of banks in Lebanon

Purpose – Prior research suggests that corporations in countries with a weak and illiquid stock market rely either on internal resources or on loans from the banking system, while family businesses, in their desire to maintain control, prefer debt to equity. Owing to the weak external monitoring role played by the financial markets in Lebanon, this paper aims to goes beyond the financial role played by Lebanese banks by investigating their role in monitoring corporate clients.Design/methodology/approach – A survey was conducted which included 12 questions and focused on the role of banks in Lebanon in fostering proper practices of governance amongst their corporate clients. The completed surveys represent 24 banks, with more than 85 percent of the total deposits, 89 percent of the total loan portfolio, and spanning all bank groupings.Findings – The paper finds that, in addition to their financing role, Lebanese banks are both active monitors of and resource providers to their corporate clients, which is c...