Shareholder diversification and the decision to go public

Andriy Bodnaruk, Eugene Kandel, Massimo Massa*, Andrei Simonov

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

67 Scopus citations


We study the effects of the controlling shareholders' portfolio diversification on the initial public offering (IPO) process. Less diversified shareholders have more to gain from taking their firm public, and are more willing to accept a lower price for shares. We test these hypotheses using the data on all IPOs in Sweden between 1995 and 2001. Using detailed information on the portfolio composition of shareholders in private and public firms, we construct several proxies of their portfolio diversification and relate them to the probability of the IPO and the underpricing. We show that the less diversified individual shareholders, especially those with lower wealth, sell more of their shares at the IPO. Firms held by less diversified controlling shareholders are more likely to go public, and exhibit higher underpricing. These effects are economically and statistically significant, while the diversification of noncontrolling shareholders has no effect. Our findings suggest that diversification of controlling shareholders plays a prominent role in the IPO process.

Original languageAmerican English
Pages (from-to)2779-2824
Number of pages46
JournalReview of Financial Studies
Issue number6
StatePublished - Nov 2008


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