Do Firms Go Public to Raise Capital?
Seoul National University - Business School
Michael S. Weisbach
Ohio State University (OSU) - Department of Finance; National Bureau of Economic Research (NBER)
February 22, 2005
This paper considers the question of whether raising capital is an important reason why firms go public. Using a sample of 16,958 initial public offerings from 38 countries between 1990 and 2003, we consider differences between firms that sell new, primary shares to the public, and existing secondary shares that previously belonged to insiders. Our results suggest that the sale of primary shares is correlated with a number of factors associated with the firm's demand for capital. In particular, issuance of primary shares is correlated with higher increases of investment, higher repayment of debt and increases in cash, and more subsequent capital-raising through seasoned equity offers. Since 79% of all capital raised through IPOs in our sample is from the sale of primary shares, we conclude that capital-raising is an important motive in the going-public decision.
Number of Pages in PDF File: 36
Date posted: February 27, 2005