Research On The Initial Public Offering With Controlling Shareholder Based On Private Benefitsof Control

Initial public offerings (IPO) is one of the major corporate strategic decision-makings, IPO not only affect the corporate capital structure and scale, but also have far-reaching influence on the company’s governance. With the constant improvement of multi-level capital market system construction in our country, more and more corporations enter the capital market to finance through IPO. However, what is the mechanism of IPO related decisions, and what are the influence factors of IPO financing? These problems lack corresponding theoretical support in practice. Large shareholder control is common in the IPO firms in our country. The controlling shareholders have strong motivation to obtain private benefits of control by encroaching the interests of minority shareholders.Based on the theory of large shareholder’s private benefits of control, the dissertation discuss the the influence mechanism of of IPO decision, IPO pricing and IPO underpricing by the Large shareholder control, and from the perspective of corporate governance, reveals the factors affecting IPO behavior of capital market in China.The controlling shareholders often dominate the IPO decision. On the one hand, IPO will change the original large shareholder’s control and ownership structure, and increase the deviation of control and cash flow right,and the controlling shareholder’s expropriation motivation increases.On the other hand, the external supervision on the controlling shareholders by the investors and market will also change. Monitoring by outside large shareholders, such as institutional shareholders and stock market will improve the value of the company, but also limit the private benefits of control of the controlling shareholder. Therefore, IPO decision under the control of controlling shareholder need to trade-off between maximization of the company value and private benefits of control. Model of the IPO decision is constructed based on the private benefits of control and external monitoring and analysis the influence factors of affect IPO decision, and the model is verified by Alibaba group IPO related cases study. The research results suggest that companies will of choosing IPO instead of private financing is positively related to financing scale, the marginal cost of private equity financing and expropriation efficiency, and negatively related to the maximum firm value and the IPO cost.Pricing decision is the core problem in the IPO, under the current IPO inquiry system in China, the offer price reflects the investors’ judgment of investment value of the IPO company, if the IPO company have concentrated ownership and controlled by large shareholder, the market investors could focus on the existing large shareholder control and the governance risks in the pricing of IPO, and react in valuating the new shares.Therefore, on the basis of theoretical analysis, this dissertation find that the company’s large shareholder ownership structure characteristics has the signal transmission effect on IPO pricing by the method of empirical research. Investors pay attention to IPO firm’s large shareholder control governance risks in the IPO valuation to some degree and make a reasonable judgment.In addition, IPO pricing will directly affect the level of IPO underpricing. The existing theories mainly explain the phenomenon of IPO underpricing based on the information asymmetry theory. In reality, China’s IPO has "three highs"(high offer price, high P/E ratio, high capital placement) phenomenons, and is not consistent with the traditional information asymmetry theory about IPO underpricing. The dissertation constructs the model of effect on IPO underpricing by the controlling shareholder and empirically find that the greater the controlling shareholder’s motivation of reducing the IPO price to maintain corporate control is negative with the degree of deviation of control and cash flow right, but tend to improve the company’s IPO offer price.On the one hand, it can compensate for the cost of offer price discount by outside investors, on the other hand it can raise much more capital, preparing for the expropriating the private benefits of control after IPO. In addition, the dissertation also find that private equity capital can’t play the roll of monitoring the controlling shareholder and certificating the investment value of IPO firm, and will weaken the negative relationship between IPO underpricing level and control and cash flow right deviation of ultimate controlling shareholder.The dissertation enrich and perfect the IPO pricing decisions theory, and give out the new view of IPO underpricing phenomenon combining with the actual situation of the securities market in our country, the conclusion of the dissertation can provide decision basis for the enterprises in IPO equity structure design, pricing, governance structure optimization, can also help investors in valuating the IPO, and provide decision-making reference for the stock supervision department of strengthen the supervision of the IPO market and related policy making and adjustment.