The IPO Market as a Screening Device and the Going Public Decision: Evidence from Acquisitions of Privately and Publicly Held Firms

Posted: 24 Oct 2011

See all articles by Tomas Mantecon

Tomas Mantecon

University of North Texas

Paul D. Thistle

University of Nevada, Las Vegas - Department of Finance

Date Written: October 23, 2011

Abstract

The main purpose of this paper is using a unique data set from IPO filings to study the IPO market as a screening device and the going public decision. We find that private firms that are less likely to have the option to access public equity markets receive 54 cents for each dollar they expected to raise in an IPO, whereas firms that are more likely to have the option to go public but sell privately sell at $1.11 for each dollar they expected to receive at the IPO. This result suggests that the lower valuation for firms sold in private markets compared to firms sold in public markets can be at least partially explained by the lower relative bargaining power of private firms. However, owners that took their firms public before selling received, on average, 40% larger payoffs than owners that had the option to go public but decided to sell privately. The results in this study indicate that these differences in valuation are not fully explained by existing theoretical models on the decision to sell privately or in two stages.

Keywords: IPO, Merger

JEL Classification: G32, G34

Suggested Citation

Mantecon, Tomas and Thistle, Paul D., The IPO Market as a Screening Device and the Going Public Decision: Evidence from Acquisitions of Privately and Publicly Held Firms (October 23, 2011). Review of Quantitative Finance and Accounting, Vol. 37, No. 3, 2011, Available at SSRN: https://ssrn.com/abstract=1948245

Tomas Mantecon (Contact Author)

University of North Texas ( email )

1155 Union Circle #305340
Denton, TX 76203
United States

Paul D. Thistle

University of Nevada, Las Vegas - Department of Finance ( email )

4505 S. Maryland Parkway
Las Vegas, NV 89154
United States
702-895-3856 (Phone)
702-895-4650 (Fax)

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Abstract Views
553
PlumX Metrics