Why European Firms Go Public?
European School of Management (ESCP) - (EAP)
Usha R. Mittoo
University of Manitoba - Department of Accounting and Finance
March 31, 2008
We survey 78 Chief Financial Officers (CFOs) from 12 European countries about the determinants of going public and exchange listing decisions. The CFOs identify enhanced visibility and prestige, and financing for growth as the most important benefits of an IPO. Their views on other motivations vary across firms and countries. Large firms consider enhanced external monitoring as the most important benefit, small firms go public primarily to raise capital for growth, and family controlled firms view the IPO as a vehicle to strengthen their bargaining power with creditors without relinquishing control. The English system firms consider the increased share liquidity and the ability to sell shares as the most important benefits whereas the Italian firms identify the reduction in the cost of capital as most valuable. Despite these divergent views, nearly all CFOs agree that the benefits of going public significantly outweigh the costs. Our main findings based on the structured questions are also confirmed by the CFO responses to open-ended questions. We ask questions on assumptions and implications of several IPO models and collect data on several firm characteristics, such as age, size, ownership structure, both before after the IPO to discriminate between different theories. Our results provide strong support for the IPO theories that emphasize investor recognition as a major advantage of an IPO, and medium support for models that focus on financing, exit strategy, balance of power, monitoring, and financial flexibility as a major benefit but among different types of firms. We find less support for the asymmetric information and cost of capital theories. European CFOs' views on the major benefits of IPO are very similar to those of U.S. managers reported in recent U.S. studies (e.g., Brau and Fawcett (2006)) but differ significantly with regard to outside monitoring which is considered a major benefit by European CFOs but a major cost by U.S. CFOs. Our evidence suggests that going public decision is a complex decision that cannot be explained by one single theory because firms seek multiple benefits in going public, and these motivations are influenced by the firm's ownership structure, size, and age as well as by the home country's institutional and regulatory environment.
Number of Pages in PDF File: 47
Keywords: Going public, European firms, IPO, survey, financing, exit, ownership
JEL Classification: F30, G32, G34, G30working papers series
Date posted: December 20, 2007 ; Last revised: April 7, 2008
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