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Why Do Firms Become Widely Held? An Analysis of the Dynamics of Corporate Ownership





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    • Jean Helwege is at Pennsylvania State University; Christo Pirinsky is at College of Business and Economics, California State University, Fullerton; and René M. Stulz is Everett D. Reese Chair of Banking and Monetary Economics, Ohio State University, NBER, and ECGI. We thank Bilal Erturk and Carrie Pan for research assistance. We are grateful for comments from an anonymous referee, David Denis, Rudiger Fahlenbrach, Clifford Holderness, Bernadette Minton, Randall Morck, Andrei Shleifer, Robert Stambaugh, Jeremy Stein, Ingrid Werner, Karen Wruck, participants at an NBER corporate finance group meeting, and seminar participants at Arizona State University, the Bank for International Settlements, Ohio State University, and the University of Manitoba.


We examine the evolution of insider ownership of IPO firms from 1970 to 2001 to understand how U.S. firms become widely held. A majority of these firms has insider ownership below 20% after 10 years. Stock market performance and liquidity play an extremely important role in ownership dynamics. Firms with stocks that are highly valued, are liquid, and have performed well experience large decreases in insider ownership and become widely held. Ownership also falls for low cash flow and high capital expenditures firms. Surprisingly, variables proxying for agency costs have limited success in explaining the evolution of insider ownership.

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