Does ownership matter? A study of German and UK IPOs

Abstract

Purpose

This paper seeks to answer the question whether control and changes in control after a firm's initial public offering (IPO) have a significant influence on firm value in two very different systems of corporate governance, i.e. Germany and the UK.

Design/methodology/approach

The dynamics of post‐IPO firm performance are investigated for size‐ and industry‐matched German and UK samples.

Findings

It was found that, although the post‐IPO evolution of control in German and UK companies differs significantly, there is no significant change in their long‐run financial and operating performance. The paper concludes that the long‐run performance of IPOs is not correlated with control and ownership retention. Moreover, the results presented in the paper suggest that the poor long‐term performance of IPOs documented in empirical literature can neither be explained by potential agency conflicts arising from the reduction in control held by the original shareholders nor by a reduction in the incumbents’ control.

Practical implications

Contrary to what may be expected, the involvement of the pre‐IPO shareholders in the firm after the flotation is not crucial to the firm in terms of value generation. Although a reduction in control is expected to lead to less intensive monitoring as strong blockholders are no longer present, there is still no evidence that the firm will suffer in terms of its performance over the long run.

Originality/value

The paper uses an original methodology which consists of matched samples of German and UK firms with similar initial levels of control. The paper then tracks changes in control over the six years after the IPO and links these to the levels of and changes in performance.

Citation

Goergen, M. and Renneboog, L. (2007), "Does ownership matter? A study of German and UK IPOs", Managerial Finance, Vol. 33 No. 6, pp. 368-387. https://doi.org/10.1108/03074350710748731