The Going Public Decision and the Structure of Equity Markets

The industries in which listed firms are concentrated in less developed equity markets are not random nor entirely explained by the underlying composition of production. Listed firms and market capitalization are disproportionately concentrated in industries that exhibit low complete-market betas - as measured by the beta of each industry with the market portfolio in the U.S. We document a strong positive relationship between the average complete-market beta and the degree of market development across countries, and in the U.S. time series. IPO activity confirms the result since new listings have higher betas than the average firm already in the market. These patterns are consistent with rational IPO decisions in a CAPM pricing context