Why Do Companies Go Public? An Empirical Analysis
AbstractThis paper empirically analyses the determinants of an initial public offering (IPO) and the consequences of this decision on a company's investment and financial policy. We compare both the ex-ante and the ex-post characteristics of IPOs with those of a large sample of privately held companies of similar size. We find that: (i) the likelihood of an IPO is positively related to the market-to-book ratio prevailing in the relevant industrial sector and to a company's size; (ii) IPOs are followed by an abnormal reduction in profitability; (iii) the new equity capital raised upon listing is not used to finance subsequent investment and growth, but to reduce leverage; (iv) going public reduces the cost of bank credit; and (v) it is often associated with equity sales by controlling shareholders, and is followed by a higher turnover of control than for other companies.
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Bibliographic InfoPaper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 1332.
Date of creation: Feb 1996
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Other versions of this item:
- Marco Pagano & Fabio Panetta & Luigi Zingales, 1995. "Why Do Companies Go Public? An Empirical Analysis," NBER Working Papers 5367, National Bureau of Economic Research, Inc.
- Marco Pagano & Fabio Panetta & Luigi Zingales, . "Why Do Companies Go Public? An Empirical Analysis," CRSP working papers 330, Center for Research in Security Prices, Graduate School of Business, University of Chicago.
- G30 - Financial Economics - - Corporate Finance and Governance - - - General
- G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies
- G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
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