why do firms go public? - Marriott School

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Jay Ritter became one of the pioneers in IPO research by compiling a database of 2,609 IPOs from 1975-1984. He used a subset of 1,526 of these IPOs that were listed on CRSP for his seminal 1991 Journal of Finance article (Ritter (1991)). Professor Ritter now offers public access to the complete database on his webpage. In the mid to late 90’s, Compact Disc Disclosure offered IPO prospectuses (SEC S-1 documents) for researchers to scour. Around the same time, Securities Data Company (SDC) was marketing its New Issues database in DOS-style format which streamed over the internet. The advent and expansion of SDC provided a catalyst for IPO researchers. Although errors have been documented in SDC along the way by scholars such as Alexander Ljungqvist and Jay Ritter (corrections available on their respective webpages), the easy access to IPO data via SDC has been a boon to researchers. Since SDC, various other data providers continue to provide richer and richer data on IPOs. The existence of these computer-readable data opened up a large literature testing IPO in the three IPO phenomena of underpricing, long-run returns, and hot markets along with newer discoveries as well. As a side note, the availability of IPO data also increased competition for new anomalies. For example, at one point in time, at least five teams of researchers were all working on the lockup expiry effect simultaneously (earliest known working paper dates: Brau, Carter, Christophe, and Key (1999), Brav and Gompers (1999), Bradley, Jordan, Roten, and Yi (1999), Field and Hanka (1999), Ofek and Richardson (2000)). Field and Hanka won the lockup expiry race with their article that was published in the Journal of Finance (Field and Hanka (2001)). The Bradley team focused their paper on VC-effects in lockups and published their paper in the Journal of Financial Research (Bradley et al. (2001)). Brav and Gompers focused on the front-end of the lockup paper and published their revised paper in the Review of Financial Studies (Brav and Gompers (2003)). The Brau et al. paper on lockup expiry was published in Managerial Finance 21
(Brau et al. (2004)) and a follow-on analysis of the lockup front-end explanation was published in the Journal of Financial and Quantitative Analysis (Brau, Lambson, and McQueen (2005)). As can be seen, the availability of public IPO data, coupled with Compustat and CRSP, increases the possibility of competition and scooping among researchers. Although the existence of SDC and other IPO data providers has spurred brisk competition and increased volume studying many IPO issues, as mentioned previously, the topic of why firms go public has received relatively little empirical study. The obvious reason for this is lack of data. If researchers desire to determine the factors of going public empirically, they must not only have data on publicly traded firms but also on privately-held firms. One can envision modeling the choice of IPO as either a probit or logit model, with the binary dependent variable being either going public or staying private. The lack of financial data for private firms, particularly in the US, limits such empirical modeling. In fact, acknowledging the difficulty of using US data to test extant theories on why firms go public, Bharath and Dittmar (2006) use the novel approach of testing reverse predictions of the IPO decision by studying firms that go private. The study of Italian data by Pagano et al. (1998), which I cite profusely throughout the discussion above, is one of the few articles able to conduct such a binary model approach. It is this lack of data and difficulty in creating instruments to detect motivation that provides the catalyst for survey research. SURVEY DATA Pinegar and Wilbricht (1989) were among the first to employ survey sampling techniques in Finance (and perhaps the first on the topic of capital structure). (For some predecessors, see Lintner (1956) on dividend policy, Gitman and Forrester (1977) on capital budgeting, and Baker, Farrelly, and Edelman (1985) on dividend policy.) Pinegar and Wilbricht (1989) survey the 22
Page 1 and 2: WHY DO FIRMS GO PUBLIC Forthcoming
Page 3 and 4: data. When dealing with the topic o
Page 5 and 6: I have found through surveys of, an
Page 7 and 8: To overcome borrowing constraints/I
Page 9 and 10: the firm is over-valued. Anticipati
Page 11 and 12: Professional private equity investo
Page 13 and 14: actually increase their ownership i
Page 15 and 16: To create public market so the firm
Page 17 and 18: good news release so they do not se
Page 19 and 20: The IPO hot issues/cycles phenomeno
Page 21: discussed above. As an example of t
Page 25 and 26: firms. Of the 392 firms that replie
Page 27 and 28: firms that indicate they plan to is
Page 29 and 30: [Insert Table 2 about here.] Table
Page 31 and 32: Because other chapters in this text
Page 33 and 34: REFERENCES Aggarwal, R., L. Krigman
Page 35 and 36: Brau, J. C., N. Sutton, and N. Hatc
Page 37 and 38: Lowry, M, and G. W. Schwert. 2002.
Page 39 and 40: Schultz, P. 2003. “Pseudo Market
Page 41 and 42: Panel F. Optimal Dispersion A benef
Page 43 and 44: Panel C. Withdrawn IPOs How importa
Page 45: Panel G. VC-Backing Very Not Import

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