Abstract

This paper addresses the propensity to use defensive mechanism at IPO by controlling shareholders and its consequences for underpricing. We specifically examine the difference in behavior and its financial consequences between founder-CEO and non-founder CEO. We argue the former to be not only more likely to use these mechanisms but also to be more penalized at the IPO. We test our hypotheses using a unique hand-collected dataset of all 468 IPO’s completed in the French capital markets from 1992 to 2010. Our results indicate that founder-CEOs are more likely to implement at the IPO defensive mechanisms such as dual share classes, pyramid structures and voting pact agreements than non-founder CEOs. Moreover, defensive mechanisms generate an underpricing, which is significantly higher in firms led by founder-CEOs than in non-founder managed firms.

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