In Conversation with Prof. Albert H. Choi
The paper explores whether the IPO market can discipline firms to choose optimal governance structures on IPO. Albert and Tom discuss the following:
Many firms on IPO operate governance structures widely considered to be suboptimal for investors such as staggered boards and dual class shares
Yet traditional theories suggest that firms are incentivised to choose the optimal governance structure at IPO in order to maximise firm value
However, information asymmetries between public investors and firms at IPO can result in sub-optimal structures being chosen, meaning that the market may not act as a disciplining measure on firms
The paper considers various devices to address this including verification using a costly gatekeeper, reliance on management ownership, deliberate under-pricing, and post-IPO liability. None of these are found to be ideal solutions
The paper applies the implications to the case of dual class shares and considers when features such as sunset clauses may be appropriate
ECGI Conversations is an interview series aimed at uncovering valuable insights, ideas, and perspectives from cutting-edge academic research. Hosted by ECGI Executive Fellow, Dr. Tom Gosling, this series delivers engaging discussions with leading experts in the field.
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