Does family involvement foster IPO value? Empirical analysis on Italian stock market

Abstract

Purpose -The purpose of this paper is to shed light on the relationship between family involvement and Initial Public Offering (IPO) value in the Italian context. Design/methodology/approach -Based on a unique hand-collected data set, the authors test the hypotheses on companies that went public between 2000 and 2011, making inference on 113 firms using OLS hierarchical regressions. The authors quantify the IPO value from an outside investors' perspective with two measures to proxy for IPO value in the short-term and apply robustness checks for long-run performance. In a stewardship framework, the authors examine demographic variables including family firm status, family involvement in managerial positions and family generations. Findings -The results suggest that family firm status positively influences IPO value, that greater family involvement corresponds to higher IPO value and lastly, that the beneficial effect of family control is mainly attributable to the first generation. The results are robust to alternative specifications of each phenomenon. Research limitations/implications -As a single-country study, the results refer exclusively to the Italian context and thus the evidence provided may not automatically be generalized to IPOs of comparable equity markets. Originality/value -This study expands current knowledge by showing how investors "price" family ownership in an IPO; furthermore the authors assess how certain characteristics of family firms affect the IPOs (e.g. family involvement and intergenerational).

Financial Wealth, Socioemotional Wealth, and IPO Underpricing in Family Firms: A Two-stage Gamble Model

“…Third, testing our theoretical model in a large sample of IPOs spanning multiple countries and an extended period of time, our study adds to the limited evidence on IPO underpricing in family firms, which has so far provided mixed support for the behavioral agency predictions on differences in IPO pricing between family and nonfamily firms (e.g., Brennan & Franks, 1997;Cirillo, Romano, & Ardovino, 2015;Leitterstorf & Rau, 2014;Roosenboom & Schramade, 2006). For example, Leitterstorf and Rau (2014) find a higher level of IPO underpricing in family firms from examining IPOs listed in Germany in the period 2004-2011.…”

“…Others find significant negative effects of family ownership on IPO underpricing in Italy, France, and the U.K. (e.g., Brennan & Franks, 1997;Cirillo et al, 2015;Roosenboom & Schramade, 2006). Our study provides a refined test of the behavioral agency model by introducing important theoretical and methodological refinements.…”

All the power in two hands: The role of CEOs in family IPOs

“…By the same token, Mah erault (2000) finds that family IPOs are more capable to catch growth opportunity than non-family counterparts. Likewise, Cirillo et al (2015) provide evidences of positive relationship of family involvement and IPOs valuation.…”

“…We rely on Italian institutional setting to develop our hypotheses. The massive presence of family ownership as well as the introduction (1999) and the implementation (2002, 2006 and 2009) of the Corporate Governance Code, makes this market an ideal setting to investigate the CEO role in the transitional stage of IPOs (Cirillo, Romano, & Ardovino, 2015).…”

Funding alternatives and business planning in family businesses

“…That is why, in order to assure the success of an IPO, former owners may agree to offer the new shares with some discount (at a lower price than the estimated intrinsic value). In case of an IPO different investors may have markedly different interests (Cirillo et al 2015).…”