Ownership Structure and IPO Valuation—Evidence from Taiwan


  • The authors thank the participants at the 2004 NTU International Conference on Finance; the 13th Annual Conference on Pacific Basin Finance, Economics, Accounting, and Business at Rutgers University; the 2005 International Conference on Corporate Governance at Fu Jen Catholic University for their comments and suggestions; and Hui-Wen Wu for the excellent research assistance. Yeh would like to thank Joseph Fan and T. J. Wong for the research support during his visit with the Hong Kong University of Science and Technology, where part of the research was carried out. We are indebted to William Christie (the editor) and an anonymous referee for comments that greatly improved the quality of this article. The authors would also like to thank the National Science Council of R.O.C. for the research support under Contract No. NSC92-2416-H-030-008. We accept responsibilities for all remaining errors.


We investigate the effect of ownership structure on initial public offering (IPO) valuation in the Taiwanese market, in which many large shareholders exert control through pyramidal structures and cross-shareholdings with voting rights that are in excess of cash flow rights. Our analysis indicates that outside shareholders incorporate the effect of potential expropriation by entrenched large shareholders in valuing an IPO, since a deviating voting-cash structure is negatively associated with the valuation metric at both the offer and initial secondary market prices relative to the corresponding intrinsic value. We also show that a deviating voting-cash structure correlates negatively with IPO underpricing.