Why Do Firms Go Public? The Role of the Product Market

Abe de Jong, Carel A. Huijgen, Teye A. Marra*, Peter Roosenboom

*Corresponding author for this work

Research output: Contribution to journalArticleAcademicpeer-review

10 Citations (Scopus)

Abstract

This paper investigates the effect of product market characteristics on the decision to go public. When firms decide to go public or remain private, they trade off product market related costs and benefits. Costs arise from the loss of confidential information to competitors, e.g., in the IPO prospectus and subsequent mandated public disclosures, while benefits emerge from raising capital allowing the firm to strengthen its position in the product market. Our results show that UK firms are more likely to go public when they operate in a more profitable industry and in an industry with lower barriers to entry. These firms are more likely to go public in order to improve their position in the product market and to deter new entrants into the industry. However, firms from more competitive industries and firms with smaller market share are less likely to go public. For these firms the loss of confidential information to rivals outweighs the benefits of going public.

Original languageEnglish
Pages (from-to)165-192
Number of pages28
JournalJournal of Business Finance & Accounting
Volume39
Issue number1-2
DOIs
Publication statusPublished - 2012

Keywords

  • going public
  • initial public offering
  • product market competition
  • confidential information
  • EARNINGS QUALITY
  • DISCLOSURE
  • DECISION
  • OFFERINGS
  • IPOS
  • INVESTMENT
  • INNOVATION
  • PRIVATE
  • COSTS

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