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The dynamics of going public

Bustamante, Maria Cecilia (2012) The dynamics of going public. Review of Finance, 16 (2). pp. 577-618. ISSN 1572-3097

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Abstract

This paper develops a real options model in which firms may use the timing of their initial public offerings (IPOs) to signal the quality of their investment prospects to outside investors. When adverse selection is more relevant (cold markets), firms with better investment prospects accelerate their IPO relative to their perfect information benchmark to reveal their type to outside investors. When adverse selection is less relevant (hot markets), all firms issue simultaneously, issuers are younger on average, and IPO timing is uninformative. An extension with multiple signals and the empirical evidence show that better ranked firms are younger, issue a lower fraction of shares, and underprice more during cold markets, and that issuers are younger on average during hot markets.

Item Type: Article
Official URL: http://rof.oxfordjournals.org/
Additional Information: © 2011 The Author
Library of Congress subject classification: H Social Sciences > HJ Public Finance
Journal of Economic Literature Classification System: D - Microeconomics > D8 - Information, Knowledge, and Uncertainty > D82 - Asymmetric and Private Information
G - Financial Economics > G1 - General Financial Markets > G14 - Information and Market Efficiency; Event Studies
G - Financial Economics > G3 - Corporate Finance and Governance > G31 - Capital Budgeting; Fixed Investment and Inventory Studies
G - Financial Economics > G3 - Corporate Finance and Governance > G32 - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure
Sets: Departments > Finance
Collections > Economists Online
Rights: http://www.lse.ac.uk/library/usingTheLibrary/academicSupport/OA/depositYourResearch.aspx
Date Deposited: 13 Jul 2011 12:11
URL: http://eprints.lse.ac.uk/37379/

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