Thursday, January 17, 2013
(USC) presents The Supercharged IPO (with Victor Fleischer (Colorado)) at UCLA today as part of its Tax Policy and Public Finance Colloquium hosted by Jason Oh and Kirk Stark:
In this article, we investigate a new and widely discussed financial
innovation: the supercharged initial public offering (IPO). A
supercharged IPO differs from a conventional IPO because it involves a
contract provision that enables the original owners of a firm to extract
large amounts of money from the company in the post-IPO period.
Supercharged IPOs have generated substantial debate and controversy but
no scholar or team of scholars has investigated why the supercharged IPO
emerged and how it has spread across industries and geographic areas.
We amassed a large dataset of IPOs and empirically investigate these
questions. We find the motivation for pursuing this new deal structure
relates to the parties’ desire to take advantage of tax arbitrage
opportunities, and not to a devious plan by owner-founders to steal from
unknowing public investors as many critics have argued. Our results
also suggest, contrary to the existing literature, that while innovation
in the IPO context is an on-going process—it tends to spike when the
economy performs poorly. With respect to the process of use and
diffusion, we find that the earliest innovators are firms widely viewed
to be aggressive and flexible, such as those organized in tax havens.
Over time, however, the diffusion process is best explained by two
factors: elite lawyers and professional networks—especially those
located in the New York City region. Owner-founders who seek to go
public with the help of an IPO, tend to supercharge their IPO when their
hire elite New York City lawyers.