Abstract and Keywords
The question of why entrepreneurs choose to conduct an IPO has received relatively little attention when compared to other IPO topics such as initial underpricing and the long-run performance of IPOs. This article summarizes, analyzes, and expands the current discussion of why firms go public. It begins by discussing the theoretical underpinnings and testable hypotheses offered thus far in the academic literature. It then discusses the empirical evidence for (and against) each of these potential explanations after presenting the intuition behind them. It focuses on two types of empirical research: large-sample publicly available financial and stock data, and proprietary survey data. When dealing with the topic of why firms go public, both approaches to research contain their own challenges. Publicly available data sources typically do not contain detailed information on private firms (particularly in the United States). Without private firm data, it is difficult to compare private and public firms to isolate the factors determining why firms go public. In addition, it is problematic to ascertain motives for the factors observed in these types of studies.
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