Going-Public vs. Private Sales: A Two-Tiered Agency Approach

25 Pages Posted: 13 Mar 2001

See all articles by Xiangkang Yin

Xiangkang Yin

Deakin University; Financial Research Network (FIRN)

Date Written: January 2001

Abstract

This paper models a situation that an entrepreneur with assets in place and uncertain development opportunities decides whether to sell his business to public capital markets or to place it privately to a conglomerate. It finds that going-public is more profit enhancive, in most circumstances, than private sales because the two-tiered managerial hierarchy of the conglomerate causes more adverse effects of agency problem. However, the better profit performance of going-public cannot definitely ensure the entrepreneur to avoid private sales. When the public market's valuation of the business is equal to conglomerate headquarter manager's valuation, the entrepreneur will sell the business to the conglomerate.

Keywords: Going-public, Initial public offering, Private sales, Agency problem, Two-tier managerial hierarchy

JEL Classification: G32, G34

Suggested Citation

Yin, Xiangkang, Going-Public vs. Private Sales: A Two-Tiered Agency Approach (January 2001). Available at SSRN: https://ssrn.com/abstract=261401 or http://dx.doi.org/10.2139/ssrn.261401

Xiangkang Yin (Contact Author)

Deakin University ( email )

Melbourne, Victoria
Australia

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

HOME PAGE: http://www.firn.org.au

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