NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

The Evolution of Corporate Ownership After IPO: The Impact of Investor Protection

C. Fritz Foley, Robin Greenwood

NBER Working Paper No. 14557
Issued in December 2008
NBER Program(s):   CF   LE

Recent research documents that ownership concentration is higher in countries with weak investor protection. However, drawing on panel data on corporate ownership in 34 countries between 1995 and 2006, we show this pattern does not hold for newly public firms, which tend to have concentrated ownership regardless of the level of investor protection. We show that firms in countries with strong investor protection are more likely to experience decreases in ownership concentration after listing, that these decreases appear in response to growth opportunities, and that they are associated with new share issuance. We consider the implications of these findings for financing choices and patterns in firm growth and analyze alternative explanations for the diffusion of ownership that could distort our interpretations. We conclude that ownership concentration falls as firms age following their IPO in countries with strong investor protection because firms in these countries raise capital and grow, diluting blockholders in the process.

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