Choice of Organizational Form as a Trade-Off Between Fit and Market Timing

55 Pages Posted: 15 Mar 2007

See all articles by Mark R. Huson

Mark R. Huson

University of Alberta - Department of Finance and Statistical Analysis

Federica Pazzaglia

University College Dublin

Date Written: March 12, 2007

Abstract

This paper proposes that a firm's choice of organizational form is a trade-off between the fit with its investment opportunity set, and its attempt to exploit periods of favourable market valuations for a given organizational form. To test this prediction, we identify 272 firms that go public in Canada between 1995 and 2005. Of these, 128 choose the organizational form of public corporation, while 144 choose the alternative organizational form of income trust. We find that market timing affects the choice of organizational form. An increase in valuations for income trusts relative to public corporations increases the likelihood that a firm will go public as an income trust. Using propensity score matching, we also show how market timing driven choices allow firms to maximize the proceeds through reduced initial underpricing and reduced underwriting fees.

Keywords: Market timing, IPO, Free cash flow theory, Costs of going public

JEL Classification: G14, G32

Suggested Citation

Huson, Mark R. and Pazzaglia, Federica, Choice of Organizational Form as a Trade-Off Between Fit and Market Timing (March 12, 2007). Available at SSRN: https://ssrn.com/abstract=970268 or http://dx.doi.org/10.2139/ssrn.970268

Mark R. Huson

University of Alberta - Department of Finance and Statistical Analysis ( email )

4-20C Business
University of Alberta
Edmonton, Alberta T6G 2R6
Canada
780-492-2803 (Phone)
780-492-3325 (Fax)

Federica Pazzaglia (Contact Author)

University College Dublin ( email )

Belfield, Dublin 4 4
Ireland

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
137
Abstract Views
898
rank
218,437
PlumX Metrics