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Do Firms Go Public to Raise Capital?

  • Woojin Kim
  • Michael Weisbach

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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File URL: http://www.nber.org/papers/w11197.pdf
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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
Note: CF
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  1. Ansgar Belke & Friedrich Schneider, 2003. "Privatization in Austria: Some Theoretical Reasons and First Results About the Privatization Proceeds," Diskussionspapiere aus dem Institut für Volkswirtschaftslehre der Universität Hohenheim 229/2003, Department of Economics, University of Hohenheim, Germany.
  2. Ritter, Jay R, 1991. " The Long-run Performance of Initial Public Offerings," Journal of Finance, American Finance Association, vol. 46(1), pages 3-27, March.
  3. 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.
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