Going public often creates an agency conflict between the owner-manager and minority shareholders. This problem is especially severe in countries with poor legal investor protection, such as France. We examine the controlling position of owner-managers in French initial public offering (IPO) firms. We find that investors anticipate the increased agency conflict associated with a lock on control and lower firm value when the owner-manager is more powerful. Shareholder agreements in which the owner-manager agrees to share control with other pre-IPO owners enhance firm value. We also report that higher cash flow ownership by the owner-manager is positively related to firm value when he is not in full control. Finally, we document that the large (non-pecuniary) private benefits of control in France may motivate owner-managers to retain control after the IPO.

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doi.org/10.1016/j.jcorpfin.2005.02.001, hdl.handle.net/1765/30985
ERIM Top-Core Articles
Journal of Corporate Finance
Erasmus Research Institute of Management