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Why do public firms issue private and public securities?

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  • Gomes, Armando
  • Phillips, Gordon

Abstract

The market for public firms issuing private equity, debt, and convertible securities is large. Of the over 13,000 issues we examine, more than half are in the private market. Our results show asymmetric information plays a major role in the choice of security type within public and private markets and in the choice of market in which to issue securities. In the public market, firms’ predicted probability of issuing equity declines and issuing debt increases with measures of asymmetric information. There is a weak reversal of this sensitivity in the private market. We also find a large sensitivity of the choice of public versus private markets to asymmetric information, risk and market timing for debt, convertibles, and in particular, equity issues.

Suggested Citation

  • Gomes, Armando & Phillips, Gordon, 2012. "Why do public firms issue private and public securities?," Journal of Financial Intermediation, Elsevier, vol. 21(4), pages 619-658.
  • Handle: RePEc:eee:jfinin:v:21:y:2012:i:4:p:619-658
    DOI: 10.1016/j.jfi.2012.03.001
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    Keywords

    Security issuance; Private markets; Asymmetric information; Equity and debt issuance;

    JEL classification:

    • G0 - Financial Economics - - General
    • G2 - Financial Economics - - Financial Institutions and Services
    • G3 - Financial Economics - - Corporate Finance and Governance

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