Tunneling or Propping: The Intra-Business Group Effect of IPOs

Abstract

We examine whether diversification and firms’ multiple interfirm ties within Taiwanese business groups benefit member firms when their group peers make initial public offerings (IPOs) or whether they provide a way for controlling shareholders to tunnel We find that member firms of business groups experience greater underpricing than stand-alone firms in their IPOs and their group peers have negative market responses This evidence is consistent with the tunneling hypothesis More importantly this effect is stronger when member firms within diversified business groups are connected via equity ties Furthermore we also offer an original analysis of how family control in business groups facilitates value expropriation Finally we obtain statistically significant underperformance for both member firms and stand-alone firms in the long-run after the focal IPOs

Date of Award	2016 May 31
Original language	English
Supervisor	Shao-Chi Chang (Supervisor)