A law and finance analysis of initial public offerings

Holmén, Martin; Högfeldt, Peter

doi:10.1016/j.jfi.2003.11.003

Cited by 77 publications

(52 citation statements)

References 33 publications

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“…4 This valuation ratio compares the market value of equity that reflects the company's earning power and expected cash flows to the book value of equity that reflects the money shareholders originally invested in the company. This measure of firm value is widely used in the empirical literature (e.g., Gorton & Schmid, 2000;Holmén & Högfeldt, 2004;Keloharju & Kulp, 1996). Damodaran (2000) shows that market-to-book ratios can be used across firms for signs of under-or overvaluation.…”

Section: Data and Sample Descriptionmentioning

confidence: 99%

The effect of ownership and control on market valuation: Evidence from initial public offerings in The Netherlands

Roosenboom

Goot

2005

International Review of Financial Analysis

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Section: Data and Sample Descriptionmentioning

confidence: 99%

The effect of ownership and control on market valuation: Evidence from initial public offerings in The Netherlands

Roosenboom

Goot

2005

International Review of Financial Analysis

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“…For instance, in contrast to many developing nations, Sweden provides no evidence of widespread tunneling (i.e., expropriation of benefits by a dominant shareholder). This is despite formal institutions that allow dual class shares, pyramiding, and cross‐holding – all factors normally associated with the phenomenon (Agnblad, Berglöf, Högfeldt, & Svancar, 2001; Holmén & Högfeldt, 2004). Stafsudd (2009) attributes the lack of tunneling to Sweden's social norms including higher levels of business honesty.…”

Section: Law Social Norms and Market Behaviormentioning

confidence: 99%

The Contribution of Social Norms to the Global Financial Crisis: A Systemic Actor Focused Model and Proposal for Regulatory Change

Nicholson¹,

Kiel

Kiel-Chisholm

2011

Corporate Governance: An International Review

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Manuscript Type: ConceptualResearch Question/Issue: Conventional regulatory reforms of the financial system focus on standard economic assumptions of self-interested, rational actors. The Global Financial Crisis (GFC) and similar financial failures highlight that there are limits to this approach. Instead we use a norm-based (or soft law) perspective to examine how the systemic problems underlying the GFC lay not so much in neo-classical economic assumptions of self-interest, but in unchecked financial innovation exploited by norms of buyer beware and ratings agency reliance among market participants. Fueled by sectorwide remuneration practices, these norms created information asymmetries that fundamentally undermined the integrity of the market. Research Findings/Insights: We present a model that highlights how investment banks, as professional service firms, have superior information to their clients. This presents an information asymmetry problem whereby they can exploit the market norm of caveat emptor (buyer beware) when developing innovative financial transactions. We propose a model highlighting how flawed financial innovation can lead to widespread, systemic problems of assessing and pricing risk because market participants can actively develop and promote flawed transactions. This problem is exacerbated where there is an overreliance on credit ratings agencies (due to the high information and search costs facing buyers) and a reduced emphasis on director fiduciary duties in financial Special Purpose Entities. Theoretical/Academic Implications: Social norms that underpin financial markets are central to market regulation. Our approach provides a re-examination of the often unquestioned use of universal norms for differing market transactions in the financial sector. Researchers need to explore the interaction between social norms and market contexts (such as financial innovation) to better understand the behavior of financial markets. We contend that a mismatch between norms and market mechanisms can lead to significant unintended outcomes. Our approach of combining soft law (norms) and hard law (regulation) approaches to regulation provides added insights into agency, stewardship, and institutional theories. Practitioner/Policy Implications: Regulators need to understand norms and financial market contexts to develop better legislative interventions. Specifically, differentiating between transaction types in financial markets will address the problems associated with information and search costs facing buyers of flawed financial innovation. We also provide proposals for policy makers seeking to embed accountability for risk taking across the key participants in the financial system to minimize market distortions in the majority of the financial sector.

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“…(2005) find that legal rules are significantly related to ownership concentration, but law enforcement does not affect ownership concentration. Moreover, Dyck (2000) and Holmén and Högfeldt (2004) argue that the quality of legal protection will affect not only the initial ownership concentration at the time of share offering, but also the evolution of ownership concentration after listing.…”

Section: Literature Review and Hypothesis Developmentmentioning

confidence: 99%

State Control, Legal Investor Protection, and Ownership Concentration: Evidence from China

Shi-nong

Yuan

2009

Corporate Governance

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Manuscript Type: EmpiricalResearch Question/Issue: To control for the omitted-variables and aggregation biases problem existing in previous crosscountry studies, our paper investigates the relationship of ownership concentration and legal investor protection across regions and over time in one emerging economy, China, during the period 1992 to 2003. Moreover, this paper examines whether state control affects this relationship. Research Findings/Results: For state-controlled firms, we cannot find the typical inverse relationship between ownership concentration and legal investor protection documented by La Porta, Lopez-de-Silanes, Shleifer, and Vishny (1998), since state per se works as a substitute for formal legal investor protection in protecting property rights by exploiting political power. However, for non-state-controlled firms, the inverse relationship does hold. Theoretical Implications: Our findings suggest that the nature of the controlling shareholder should be taken into account when examining the relationship between ownership concentration and legal investor protection. Moreover, our findings give new insights, especially to the study on other emerging economies that share similar characteristics with China in terms of legal development and government control. Finally, the cross-region study within one country provides a new perspective on the research in this area. Practitioner Implications: First, to provide a level playing field for different types of investors, the state's dual role of controlling shareholder and political power holder should be separated. Second, it is important to build up a good legal system to protect investors in order for a country to develop its capital markets, especially for the development of the non-state sector.

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A law and finance analysis of initial public offerings

Cited by 77 publications

References 33 publications

The effect of ownership and control on market valuation: Evidence from initial public offerings in The Netherlands

The effect of ownership and control on market valuation: Evidence from initial public offerings in The Netherlands

The Contribution of Social Norms to the Global Financial Crisis: A Systemic Actor Focused Model and Proposal for Regulatory Change

State Control, Legal Investor Protection, and Ownership Concentration: Evidence from China

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