The Conflict Between Agency Theory and Corporate Control on Managerial Ownership: The Evidence from Taiwan IPO Performance

When a private-held firm goes public through an IPO (initial public offering) process, the managerial ownership of the IPO firm declines due to external equity financing. The effects of dilution of ownership structure on firm performance are different with respect to the agency theory and corporate control theory. For Taiwan IPOs, we argue that the level of managerial ownership of IPO firms at issuance is basically high enough to control the firm. We show that the increase of managerial ownership of IPO firms in the early aftermarket would be hazardous to firm performance. That is, the corporate control benefit dominates the agency costs of IPO firm from the point of view of managerial ownership.