To IPO or Not To IPO: Risks, Uncertainty and the Decision to Go Public

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61 citations0/0 files storedBritish Journal of Management

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Corporate Finance and Governance Auditing, Earnings Management, Governance Private Equity and Venture Capital

Abstract

We employ three views of agency theory in unison to investigate managerial risk‐taking in uncertain markets. Using 124 firms that filed to go public toward the end of the technology boom (2000–2002), we explore the influence of CEO ownership on the decision to continue or withdraw an initial public offering (IPO) in deteriorating public equity markets. We find an inverse U‐shaped relationship between CEOs' equity participation and the decision to proceed with a public offering: the probability of IPO cancellation in weak capital markets increases as CEOs hold too little or too much ownership. Our results also indicate that a firm's debt levels are positively linked with the IPO decision. CEO ownership and leverage intensity interact to influence the decision to take a firm public.

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References

1976Theory of the firm: Managerial behavior, agency costs and ownership structure 1983Separation of Ownership and Control 1986Agency Costs of Free Cash Flow, Corporate Finance, and Takeovers 1997A Survey of Corporate Governance 1958The Cost of Capital, Corporation Finance and the Theory of Investment 1989Agency Theory: An Assessment and Review 1980Agency Problems and the Theory of the Firm 1996Agency costs of free cash flow, corporate finance, and takeovers

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