Moving from Private to Public Ownership: Selling Out to Public Firms versus Initial Public Offerings

Annette B. Poulsen · Mike A. Stegemoller

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Corporate Finance and Governance Financial Analysis and Corporate Governance Private Equity and Venture Capital

Abstract

We study two alternative means to move assets from private to public ownership: through the acquisition of private companies by firms that are public (sellouts) or through initial public share offerings (IPOs). We consider firm‐specific characteristics for 1,074 IPO and 735 sellout firms to identify differences in growth, capital constraints, and asymmetric information between the two types of transactions. Our results suggest that firms move to public ownership through an IPO when they have greater growth opportunities and face more capital constraints. We provide a better understanding of the firm‐specific characteristics that lead firms to go public.

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References

1984The Capital Structure Puzzle 1997Industry costs of equity 1992The investment opportunity set and corporate financing, dividend, and compensation policies 1984The Capital Structure Puzzle 1990The structure and governance of venture-capital organizations 1986Investment banking, reputation, and the underpricing of initial public offerings 2002A Review of IPO Activity, Pricing, and Allocations 1991Venture Capitalist Certification in Initial Public Offerings

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2017Financial Wealth, Socioemotional Wealth, and IPO Underpricing in Family Firms: A Two-stage Gamble Model 2011IPOs versus Acquisitions and the Valuation Premium Puzzle: A Theory of Exit Choice by Entrepreneurs and Venture Capitalists 2011Equilibrium in the Initial Public Offerings Market 2010Venture Capital Conflicts of Interest: Evidence from Acquisitions of Venture-Backed Firms 2016Going public via special purpose acquisition companies: Frogs do not turn into princes

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