Working Paper: NBER ID: w29219
Authors: Borja Larrain; Gordon M. Phillips; Giorgo Sertsios; Francisco Urza
Abstract: We study the effects of going public using a unique panel of firms in 16 European countries for which we observe financial data before and after firms' initial-public-offering (IPO) attempts. We compare firms that complete their IPO with firms that withdraw their IPO. We instrument the going public decision using prior market returns. We find that firm profitability goes up after going public—contrary to previous results in the literature. We also find an post-IPO expansion in the number of subsidiaries and countries in which IPO firms operate. Our results are stronger for firms in financially dependent industries and in countries with higher investor protection consistent with going public relaxing financial constraints and with a stronger impact when agency conflicts are lower. Overall, our results are consistent with going public inducing a shift towards a strategy of commercialization to increase profitability.
Keywords: Going Public; Firm Performance; IPO; Commercialization Strategy
JEL Codes: G32
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Positive market returns (G19) | Likelihood of IPO completion (G24) |
| Going public (G24) | Firm profitability (L21) |
| Going public (G24) | Strategic shift towards commercialization (L19) |
| Going public (G24) | Number of subsidiaries and countries of operation (M16) |
| Going public (G24) | Patenting rates (O34) |