Why Do Public Firms Issue Private and Public Securities?

48 Pages Posted: 23 Mar 2007

See all articles by Gordon M. Phillips

Gordon M. Phillips

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

Armando R. Gomes

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

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Date Written: February 16, 2007

Abstract

We examine 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. We find that asymmetric information plays a major role in the choice of security type within public and private markets. 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 weak reversal of this sensitivity in the private market. We also find large differences in the sensitivity of security issue decisions to market timing, risk and investment opportunity variables in public and private markets. Our results point to a potentially important unexplored dimension of capital structure - the public-private funding ratio in addition to the debt-equity ratio.

Suggested Citation

Phillips, Gordon M. and Gomes, Armando R. and Gomes, Armando R., Why Do Public Firms Issue Private and Public Securities? (February 16, 2007). AFA 2008 New Orleans Meetings Paper, Available at SSRN: https://ssrn.com/abstract=972723 or http://dx.doi.org/10.2139/ssrn.972723

Gordon M. Phillips

Dartmouth College - Tuck School of Business ( email )

Hanover, NH 03755
United States

National Bureau of Economic Research (NBER)

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Armando R. Gomes (Contact Author)

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

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Campus Box 1133
St. Louis, MO 63130-4899
United States
314-935-4569 (Phone)

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

One Brookings Drive
Campus Box 1133
St. Louis, MO 63130-4899
United States
314-935-4569 (Phone)

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