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Why Do Firms Go Public through Debt Instead of Equity?

49 Pages Posted: 20 Mar 2012 Last revised: 16 Aug 2015

Denys Glushkov

University of Pennsylvania - The Wharton School, Wharton Research Data Services (WRDS); Acadian Asset Management LLC

Ajay Khorana

Georgia Institute of Technology - Finance Area

P. Raghavendra Rau

University of Cambridge

Date Written: August 15, 2015

Abstract

We analyze a sample of private firms that choose to go public through an initial public debt offering (IPDO) as an alternative to going public through equity (IPO). These IPDO firms, which have never been analyzed in the prior literature, are more likely to be sponsor backed, significantly larger, and less likely to face information asymmetry than traditional IPO firms. Their debt issues are more expensive and face more restrictive covenants than initial debt issues by publicly listed peers. When these debt-first firms eventually go public, they face lower underpricing than firms without public debt at IPO. Overall, our results are consistent with the hypotheses that ownership structure and the relative informativeness of reported financial statements in different markets drive the decision of where to go public.

Keywords: Initial public debt offerings, information asymmetry, going public decision, financial statement informativeness

JEL Classification: G30, G32

Suggested Citation

Glushkov, Denys and Khorana, Ajay and Rau, P. Raghavendra, Why Do Firms Go Public through Debt Instead of Equity? (August 15, 2015). Available at SSRN: https://ssrn.com/abstract=2024375 or http://dx.doi.org/10.2139/ssrn.2024375

Denys Glushkov

University of Pennsylvania - The Wharton School, Wharton Research Data Services (WRDS) ( email )

WRDS, St. Leonard's Court
3819 Chestnut St, suite 300
Philadelphia, PA 19104
United States
2158986705 (Phone)

HOME PAGE: http://ssrn.com/author=664253

Acadian Asset Management LLC ( email )

260 Franklin Street
Boston, MA 02110
United States

Ajay Khorana

Georgia Institute of Technology - Finance Area ( email )

800 West Peachtree St.
Atlanta, GA 30308
United States
404-894-5110 (Phone)
404-894-6030 (Fax)

P. Raghavendra Rau (Contact Author)

University of Cambridge ( email )

Cambridge Judge Business School
Trumpington Street
Cambridge, Cambridgeshire CB21AG
United Kingdom
3103626793 (Phone)

HOME PAGE: http://www.raghurau.com/

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