||Tunneling or Propping: The Intra-Business Group Effect of IPOs
||Institute of International Business
We examine whether diversification and firms’ multiple interfirm ties within Taiwanese business groups benefit member firms when their group peers make initial public offerings (IPOs), or whether they provide a way for controlling shareholders to tunnel. We find that member firms of business groups experience greater underpricing than stand-alone firms in their IPOs, and their group peers have negative market responses. This evidence is consistent with the tunneling hypothesis. More importantly, this effect is stronger when member firms within diversified business groups are connected via equity ties. Furthermore, we also offer an original analysis of how family control in business groups facilitates value expropriation. Finally, we obtain statistically significant underperformance for both member firms and stand-alone firms in the long-run after the focal IPOs.
Chapter 1 INTRODUCTION……………………………………………………………1
Chapter 2 BACKGROUND AND HYPOTHESES……………………………………..8
2.1 The Effect of Business Group Membership on IPOs…………………8
2.2 Diversification Discount of Business Group Membership…………..11
2.3 Direct Effects of Equity Ties on IPOs……………………………….14
2.4 Direct Effects of Interlocking Directors on IPOs……………………16
2.5 Moderating Effects of Family Control………………………………18
2.6 Business Group and Long-Term Performance………………………23
Chapter 3 SAMPLE AND EMPIRICAL METHODOLGY…………………………...24
3.1 Sample Design……………………………………………………….25
3.2 Sample Characteristics……………………………………………….25
3.3 Empirical Methodology……………………………………………...26
3.4 Independent Variables………………………………………………..27
3.5 Control Variables…………………………………………………….28
3.6 IPO Valuation Characteristics………………………………………..31
Chapter 4 ESTIMATION AND RESULTS……………………………………………33
4.1 Underpricing of IPO Firms and Abnormal Returns for Their Member Firms…………………………………………………………….......33
4.2 Univariate Analysis…………………………………………………..36
4.3 Regression Results…………………………………………………...38
4.4 Post-IPO Performance……………………………………………….43
Chapter 5 CONCLUSION……………………………………………………………..44
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