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Do Firms Go Public to Raise Capital?

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  • Woojin Kim
  • Michael Weisbach

Abstract

This paper considers the question of whether raising capital is an important reason why firms go public. Using a sample of 16,958 initial public offerings from 38 countries between 1990 and 2003, we consider differences between firms that sell new, primary shares to the public, and existing secondary shares that previously belonged to insiders. Our results suggest that the sale of primary shares is correlated with a number of factors associated with the firm's demand for capital. In particular, issuance of primary shares is correlated with higher increases of investment, higher repayment of debt and increases in cash, and more subsequent capital-raising through seasoned equity offers. Since 79% of all capital raised through IPOs in our sample is from the sale of primary shares, we conclude that capital-raising is an important motive in the going-public decision.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 11197.

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Date of creation: Mar 2005
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Handle: RePEc:nbr:nberwo:11197

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  1. Ritter, Jay R, 1991. " The Long-run Performance of Initial Public Offerings," Journal of Finance, American Finance Association, American Finance Association, vol. 46(1), pages 3-27, March.
  2. Marco Pagano & Fabio Panetta & and Luigi Zingales, 1998. "Why Do Companies Go Public? An Empirical Analysis," Journal of Finance, American Finance Association, American Finance Association, vol. 53(1), pages 27-64, 02.
  3. Ansgar Belke & Friedrich Schneider, 2004. "Privatization in Austria: Some Theoretical Reasons and First Results About the Privatization Proceeds," CESifo Working Paper Series, CESifo Group Munich 1123, CESifo Group Munich.
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Cited by:
  1. Mayur, Manas & Kumar, Manoj, 2006. "An Empirical Investigation of Going Public Decision of Indian Companies," MPRA Paper, University Library of Munich, Germany 1801, University Library of Munich, Germany.
  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.
  3. Brau, James C. & Li, Mingsheng & Shi, Jing, 2007. "Do secondary shares in the IPO process have a negative effect on aftermarket performance?," Journal of Banking & Finance, Elsevier, Elsevier, vol. 31(9), pages 2612-2631, September.
  4. Chahine, Salim, 2008. "Underpricing versus gross spread: New evidence on the effect of sold shares at the time of IPOs," Journal of Multinational Financial Management, Elsevier, Elsevier, vol. 18(2), pages 180-196, April.
  5. Borchert, Manfred, 2005. "The impact of banking behaviour on monetary strategy in Europe," Beiträge zur angewandten Wirtschaftsforschung, Center of Applied Economic Research Münster (CAWM), University of Münster 13, Center of Applied Economic Research Münster (CAWM), University of Münster.
  6. Manfred Borchert, . "The Impact of Banking Behaviour on Monetary Strategy in Europe," Working Papers, Institute of Spatial and Housing Economics, Munster Universitary 201160, Institute of Spatial and Housing Economics, Munster Universitary.
  7. Kashefi Pour, Eilnaz & Lasfer, Meziane, 2013. "Why do companies delist voluntarily from the stock market?," Journal of Banking & Finance, Elsevier, Elsevier, vol. 37(12), pages 4850-4860.

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