The impact of shareholders and creditors rights on IPO performance: An international study

Corporate governance and institutions—A review and research agenda

“…For example, some studies show that strong investor protection may also produce unintended consequences, like constraining leverage or managerial decision making that generate potential negative effects on firm value (Cho, El Ghoul, Guedhami, & Suh, 2014; Espenlaub, Goyal, & Mohamed, 2020). Moreover, recent studies suggest that formal institutions (e.g., enforcement) may have reached—or may have overcome—efficient levels in developed economies.…”

“…For example, stronger creditor rights may decrease the use of corporate debt because managers and shareholders do not want to run the risk of losing corporate control in the event of financial distress (Cho, El Ghoul, Guedhami, & Suh, 2014). Moreover, stronger investor protection may excessively constrain managerial flexibility, prevent efficient decision making (Espenlaub, Goyal, & Mohamed, 2020), and facilitate the switch from accruals management to real-earnings management (Enomoto, Kimura, & Yamaguch, 2015) (Leventis, 2018). In sum, in contrast to conventional wisdom and prior empirical studies, stronger enforcement may reduce shareholder wealth in developed countries (Christensen, Liu, & Maffett, 2020).…”

Why the Par Value of Share Matters to Investors

“…Baker and Gallagher (1980) find that lower share prices are more attractive to investors, and consequently companies can broaden their ownership base. Dyl and Elliott (2006), Fernando et al (1999) and D'Mello et al (2003 also find evidence supporting the marketability of the equity offering to individual investors. Less wealthy investors prefer lower stock prices so they can more easily diversify their portfolios.…”

“…Assuming that a given market has a certain number of active investors who want to diversify their portfolios, they will be interested in buying only a certain number of shares regardless of their price. Fernando et al (1999) present this problem vividly by quoting Yogi Berra, who, when asked if he wanted his pizza cut into four or six pieces, said, "You'd better make it four; I don't think I can eat six pieces". In this case, an increase in the number of shares can have a negative impact on their price.…”

“…And although the par value regime as the main part of the principle of maintaining capital is normally considered to be a technical issue for lawyers and accountants, it can significantly affect the financing of a company (Rickford 2004) because it represents a conjunction between shareholders' and creditors' interests (Santella and Turrini 2008). In addition, research has suggested that creditor protection has an impact on companies' capital structure (Cho et al 2014) and post-IPO operating performance (Espenlaub et al 2020).…”