The Choice of IPO Versus Takeover: Empirical Evidence

Posted: 30 Aug 2001

See all articles by James C. Brau

James C. Brau

Brigham Young University

Bill B. Francis

University of South Florida - College of Business Administration

Ninon Kohers

University of South Florida - College of Business Administration

Abstract

Private firm owners interested in gaining increased access to public capital, increasing their liquidity, and/or changing the control of their firms, face a fundamental choice between an initial public offering (IPO) or a takeover by a public acquirer. Using a sample of over 9,500 U.S. privately held firms, we address the IPO versus takeover issue by examining market-timing, industry, deal-specific, and fund demand factors of the IPO versus acquisition choice. Our results show that the concentration of the industry, the high-tech status of the private firm, the current cost of debt, the "hotness" of the IPO market relative to the takeover market, the percentage of insider ownership, and the size of the firm are all positively related to the probability that a firm will conduct an IPO. In contrast, private companies in high market-to-book industries, firms in financial service sectors, firms in highly leveraged industries, and deals involving greater liquidity for selling insiders show a stronger likelihood for takeovers. Finally, a quantitative analysis of the premiums associated with the IPO versus takeover decision provides evidence that a liquidity discount exists in takeovers relative to IPOs.

Keywords: Going public; IPO; Takeover

JEL Classification: G34, G32

Suggested Citation

Brau, James C. and Francis, Bill B. and Kohers, Ninon, The Choice of IPO Versus Takeover: Empirical Evidence. Journal of Business, Forthcoming. Available at SSRN: https://ssrn.com/abstract=276883

James C. Brau (Contact Author)

Brigham Young University ( email )

TNRB 640
Marriott School
Provo, UT 84602
United States
801-318-7919 (Phone)
801-422-0108 (Fax)

HOME PAGE: http://marriottschool.byu.edu/emp/brau/

Bill B. Francis

University of South Florida - College of Business Administration ( email )

4202 E. Fowler Avenue, BSN 3403
Dept. of Finance
Tampa, FL 33620-5500
United States
813-974-6300 (Phone)
813-974-3030 (Fax)

HOME PAGE: http://www.coba.usf.edu/departments/finance/facult

Ninon Kohers

University of South Florida - College of Business Administration ( email )

4202 E. Fowler Avenue, BSN 3403
Dept. of Finance
Tampa, FL 33620-5500
United States
813-974-6337 (Phone)
813-974-3030 (Fax)

HOME PAGE: http://www.coba.usf.edu/departments/finance/facult

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