Download this Paper Open PDF in Browser

Why Do Public Firms Issue Private and Public Securities?

52 Pages Posted: 17 Mar 2005  

Armando R. Gomes

Washington University in Saint Louis - John M. Olin Business School

Gordon M. Phillips

Tuck School of Business at Dartmouth; National Bureau of Economic Research (NBER)

Multiple version iconThere are 3 versions of this paper

Date Written: November 2005

Abstract

We examine a comprehensive set of public firms' issues of private and public debt, convertibles and common equity securities. The market for public firms issuing private securities is large. Of the over 13,000 issues we examine, more than half are in the private market, with 81\% of small public firms issuing equity and convertibles choosing to issue privately. We find that asymmetric information, in particular, plays a large role in the public versus private market choice and the security type choice. Conditional on issuing in the public market, firms' predicted probability of issuing equity declines and issuing debt increases with measures of asymmetric information. We find a reversal of this sensitivity in the private market, firms' probability of issuing debt slightly declines with measures of asymmetric information. We also find large differences in the sensitivity of security issue decisions to market timing and trade-off variables in public and private markets.

Keywords: Capital structure, financial structure, debt, equity, public, private

JEL Classification: G24, G32, G3

Suggested Citation

Gomes, Armando R. and Phillips, Gordon M., Why Do Public Firms Issue Private and Public Securities? (November 2005). Available at SSRN: https://ssrn.com/abstract=686903 or http://dx.doi.org/10.2139/ssrn.686903

Armando R. Gomes

Washington University in Saint Louis - John M. Olin Business School ( email )

One Brookings Drive
Campus Box 1133
St. Louis, MO 63130-4899
United States
3145607087 (Phone)

Gordon M. Phillips (Contact Author)

Tuck School of Business at Dartmouth ( email )

Hanover, NH 03755
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Paper statistics

Downloads
774
Rank
12,127
Abstract Views
3,009