Ownership Structure and The Public / Private Equity Choice
38 Pages Posted: 19 Nov 2012 Last revised: 7 Jul 2022
Date Written: December 29, 2021
Abstract
We take advantage of both the relatively high concentration of insider ownership in Australian firms, absent the dominance of founding families, and the widespread issuance of non-tradable rights to examine the influence of ownership structure on the firm’s public/private choice. By focusing on determinants of the underwriting arrangements in these issues, we highlight monitoring demand, not insider control dilution avoidance, as the key driver of the public/private choice in a general setting where firms are controlled by non-founding insiders. Importantly, the nature of this demand is shown to depend on pre-issue ownership concentration: While firms with low pre-issue monitor concentration use private placements as a means of acquiring additional monitoring, those with higher concentration use private placements to substitute insiders for monitors, reducing the level of independent oversight.
Keywords: Equity Issuance, Private/Public Choice,Insiders, Monitors, Rights Issues
JEL Classification: G32
Suggested Citation: Suggested Citation