The Dynamics of Going Public

This paper develops a signalling game in which the decision to raise public equityis a real option of the …rm. Firms may use multiple signals to reveal their type:the timing of the IPO, the fraction of shares issued and the underpricing of shares.The model provides a tractable approach for solving signalling games in a real optionsframework and predicts both IPO activity and underpricing conditional on adverseselection. In periods where adverse selection is less relevant (hot markets), there ishigher IPO volume, younger …rms go public and …rms with worse investment prospectsare overvalued.[...]