Proprietary Costs and Privately Held Firms' Financing Choice between Public Offerings and Private Placements

51 Pages Posted: 11 Dec 2007 Last revised: 22 Feb 2012

See all articles by Vicki Wei Tang

Vicki Wei Tang

Georgetown University - Robert Emmett McDonough School of Business

Date Written: August 31, 2008

Abstract

This paper examines whether proprietary costs influence privately held firms' financing choice between private placements and public offerings. The financing choice determines whether proprietary information revealed to investors is also available to competitors. Using hand-collected information about privately held firms, I find both cross-sectional and time-series evidence that firms with higher proprietary costs are more likely to choose private placements instead of public offerings. First, in the cross-section, at the industry level, firms operating in more competitive product markets are more likely to choose private placements. Second, at the firm level, firms operating in multiple lines of business and more profitable firms are more likely to choose private placements. Third, in the time-series, an increase in product market competition is associated with an increase in the proportion of private placements by privately held firms. Finally, firms are more likely to choose private placements under the new segment reporting regime SFAS 131.

Keywords: proprietary cost, private placements, public offerings, mandatory disclosure, segment reporting, corporate financing

JEL Classification: M41, M45, G38, G24, M21, G12

Suggested Citation

Tang, Vicki Wei, Proprietary Costs and Privately Held Firms' Financing Choice between Public Offerings and Private Placements (August 31, 2008). Available at SSRN: https://ssrn.com/abstract=1069422 or http://dx.doi.org/10.2139/ssrn.1069422

Vicki Wei Tang (Contact Author)

Georgetown University - Robert Emmett McDonough School of Business ( email )

3700 O Street, NW
Washington, DC 20057
United States

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