Working Paper: CEPR ID: DP1332
Authors: Marco Pagano; Fabio Panetta; Luigi Zingales
Abstract: This paper empirically analyses the determinants of an initial public offering (IPO) and the consequences of this decision on a company's investment and financial policy. We compare both the ex-ante and the ex-post characteristics of IPOs with those of a large sample of privately held companies of similar size. We find that: (i) the likelihood of an IPO is positively related to the market-to-book ratio prevailing in the relevant industrial sector and to a company's size; (ii) IPOs are followed by an abnormal reduction in profitability; (iii) the new equity capital raised upon listing is not used to finance subsequent investment and growth, but to reduce leverage; (iv) going public reduces the cost of bank credit; and (v) it is often associated with equity sales by controlling shareholders, and is followed by a higher turnover of control than for other companies.
Keywords: initial public offering; going public; stock market
JEL Codes: G30; G31; G32
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Market-to-Book Ratio (G32) | Likelihood of IPO (G24) |
| Company Size (L25) | Likelihood of IPO (G24) |
| Going Public (G24) | Abnormal Reduction in Profitability (G32) |
| New Equity Capital Raised (G24) | Reduction in Leverage (G32) |
| Going Public (G24) | Reduced Cost of Bank Credit (G21) |
| Going Public (G24) | Higher Turnover of Control (J63) |