NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Why Do Companies Go Public? An Empirical Analysis

Marco Pagano, Fabio Panetta, Luigi Zingales

NBER Working Paper No. 5367
Issued in November 1995
NBER Program(s):   CF

This paper empirically analyzes 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; (v) it is often associated by equity sales by controlling shareholders, and is followed by a higher turnover of control than for other companies.

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Document Object Identifier (DOI): 10.3386/w5367

Published: Journal of Finance, Vol. 53, no. 1 (February 1998): 27-64.

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