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Go Public or Stay Private: A Theory of Entrepreneurial Choice

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  • Arnoud W.A. Boot

    ()
    (Faculty of Economics and Econometrics, Universiteit van Amsterdam, and CEPR)

  • Radhakrishnan Gopalan

    ()
    (University of Michigan Business School)

  • Anjan V. Thakor

    ()
    (Olin School of Business, Washington University in St Louis)

Abstract

In this paper we analyze an entrepreneur /manager's choice between private and public ownership in a setting in which management needs some "elbow room" or autonomy to optimally manage the firm. In public capital markets, the corporate governance regime in place exposes the firm to exogenous controls, so that management may lack the autonomy it desires. By contrast, private ownership can provide management the desired autonomy due to the possibility of precisely-calibrated private contracting. The disadvantage of private ownership (relative to public ownership) is that it imposes a cost of illiquidity on those who provide financing. We explore this tradeoff between managerial autonomy and the cast of capital in a simple setting and draw a number of new testable implications.

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Bibliographic Info

Paper provided by Tinbergen Institute in its series Tinbergen Institute Discussion Papers with number 03-096/2.

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Date of creation: 03 Dec 2003
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Handle: RePEc:dgr:uvatin:20030096

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Keywords: Ownership Structure; Stockmarket Listing;

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Cited by:
  1. Ljungqvist, Alexander & Boehmer, Ekkehart, 2004. "On the decision to go public: Evidence from privately-held firms," Discussion Paper Series 1: Economic Studies 2004,16, Deutsche Bundesbank, Research Centre.
  2. Richard J. Rosen & Scott B. Smart & Chad J. Zutter, 2005. "Why do firms go public? evidence from the banking industry," Working Paper Series, Federal Reserve Bank of Chicago WP-05-17, Federal Reserve Bank of Chicago.

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