The Timing of Initial Public Offerings

Abstract

We study the dynamics of initial public offerings (IPOs) by examining the tradeoff between an entrepreneur's private benefits, which are lost whenever the firm is publicly traded, and the gains from diversification. We characterize the timing dimension of the decision to go public and its impact on firm value and on the evolution of firm risk over time. By endogenizing the timing of the decision to go public, we explain several puzzling phenomenon: the clustering of IPOs and buyouts in time, the industry concentration of IPO waves, the high incidence of re-privatization of recent IPOs, and the long-run under-performance of recently issued stock relative to the shares of longer-listed companies.

Keywords: IPO, diversification, buyout

JEL Classification: D21, D23, G32, G34