Impact of managerial control on IPO performance: the case of mutual holding companies

Variation in IPO performance may be partially explained by differences in managerial control. In general, this characteristic has been ignored, perhaps because of the difficulty in testing its influence. The IPOs by mutual thrifts offer a laboratory in which the influence of managerial control can be assessed. Mutual thrifts can either issue all of their stock to investors (stockholder ownership) or can have the majority of the stock distributed to their respective mutual holding company (MHC). The MHC approach places the majority of shares with depositors, which essentially transfers voting power to the managers. Thus, managerial control is more pronounced because governance is limited. The average initial return of stockholder owned thrifts is substantially higher than the initial return of MHCs. This difference remains even after controlling for other factors. The significantly lower initial returns of MHCs are attributed to less uncertainty for MHCs, which allows for a lower degree of underpricing. The long-run performance of MHCs is not statistically different from that of stockholder owned thrifts, which could either suggest that MHCs attempt to maximize value, or that governance of the stockholder owned thrifts is ineffective.