Supercharged Ipos
Abstract: In this article, we investigate a new and widely discussed financial innovation: the supercharged initial public offering (IPO). A supercharged IPO differs from a conventional IPO because it involves a contract provision that enables the original owners of a firm to extract large amounts of money from the company in the post-IPO period. Stated most directly, the supercharged IPO involves an agreement—unseen and unheard of prior to 1993—whereby a newly public company agrees to pay (often) billions of dollars to its founding owners over the course of a fifteen-year period after the IPO takes place. The supercharged IPOs have generated substantial debate and controversy but no commentator has thus far posed the question: why now? After all, owners and founders have taken companies public for at least three hundred years, yet the unusual payout scheme emerged just two decades ago. Moreover, this new-style IPO, while not routine, has spread across industries and geographic areas, a process that raises the question of how and why innovations diffuse after the initial discovery takes place. Finally, and perhaps most importantly, the supercharged IPO raises the question of who actually benefits: the architects of the plan, the investing public, or both? In this study, we seek to find answers to these questions with the help of a large IPO database—the first of its kind—and one that includes both conventional and supercharged IPOs over the course of the last several decades.
