Why Do Companies Go Public? An Empirical Analysis

62 Pages Posted: 10 Jun 2000 Last revised: 24 Sep 2010

See all articles by Marco Pagano

Marco Pagano

University of Naples Federico II - Department of Economics and Statistics; Centre for Studies in Economics and Finance (CSEF); Einaudi Institute for Economics and Finance (EIEF); Centre for Economic Policy Research (CEPR); European Corporate Governance Institute (ECGI)

Fabio Panetta

Bank of Italy

Luigi Zingales

University of Chicago - Booth School of Business; National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR)

Multiple version iconThere are 2 versions of this paper

Date Written: November 1995

Abstract

This paper empirically analyzes the determinants of an initial public offering (IPO) and the consequences of this decision on a company's investment and financial policy. We compare both the ex ante and the ex post characteristics of IPOs with those of a large sample of privately held companies of similar size. We find that (i) the likelihood of an IPO is positively related to the market-to-book ratio prevailing in the relevant industrial sector and to a company's size, (ii) IPOs are followed by an abnormal reduction in profitability, (iii) the new equity capital raised upon listing is not used to finance subsequent investment and growth, but to reduce leverage, (iv) going public reduces the cost of bank credit; (v) it is often associated by equity sales by controlling shareholders, and is followed by a higher turnover of control than for other companies.

Suggested Citation

Pagano, Marco and Panetta, Fabio and Zingales, Luigi, Why Do Companies Go Public? An Empirical Analysis (November 1995). NBER Working Paper No. w5367. Available at SSRN: https://ssrn.com/abstract=225430

Marco Pagano (Contact Author)

University of Naples Federico II - Department of Economics and Statistics ( email )

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Einaudi Institute for Economics and Finance (EIEF)

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Fabio Panetta

Bank of Italy ( email )

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Luigi Zingales

University of Chicago - Booth School of Business ( email )

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National Bureau of Economic Research (NBER)

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Centre for Economic Policy Research (CEPR)

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United Kingdom

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