The Dynamics of Going Public

Review of Finance, Forthcoming

UBC Winter Finance Conference 2008 Paper

WFA Annual Meetings 2008 Paper

45 Pages Posted: 10 Mar 2008 Last revised: 14 Feb 2012

See all articles by Maria Cecilia Bustamante

Maria Cecilia Bustamante

University of Maryland - Department of Finance

Date Written: November 1, 2008

Abstract

This paper develops a real options model in which firms may use the timing of their IPOs to signal the quality of their investment prospects to outside investors. When adverse selection is more relevant (cold markets), firms with better investment prospects accelerate their IPO relative to their perfect information benchmark to reveal their type to outside investors. When adverse selection is less relevant (hot markets), all firms issue simultaneously, issuers are younger on average, and IPO timing is uninformative. An extension with multiple signals and the empirical evidence show that better ranked firms are younger, issue a lower fraction of shares and underprice more during cold markets, and that issuers are younger on average during hot markets.

Keywords: IPOs, SEOs, real options, signalling games

JEL Classification: G14, G31, G32

Suggested Citation

Bustamante, Maria Cecilia, The Dynamics of Going Public (November 1, 2008). Review of Finance, Forthcoming, UBC Winter Finance Conference 2008 Paper, WFA Annual Meetings 2008 Paper, Available at SSRN: https://ssrn.com/abstract=1010901

Maria Cecilia Bustamante (Contact Author)

University of Maryland - Department of Finance ( email )

Robert H. Smith School of Business
Van Munching Hall
College Park, MD 20742
United States

HOME PAGE: http://https://sites.google.com/a/rhsmith.umd.edu/mcbustam/?pli=1

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