Why Do Companies Go Public? An Empirical Analysis

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