The Effects of Going Public on Firm Performance and Strategy: Evidence from International IPOs
47 Pages Posted: 21 Apr 2021
Date Written: April 20, 2021
We study the effects of going public using a unique panel of firms in 16 European countries for which we observe financial data before and after firms' initial-public-offering (IPO) attempts. We compare firms that complete their IPO with firms that withdraw their IPO. We instrument the going public decision using prior market returns. We find that firm profitability goes up after going public - reversing previous results in the literature. We also find an expansion in the number of subsidiaries and countries where firms operate post-IPO. Our findings for firms in financially dependent industries and in countries with higher investor protection suggest that going public relaxes financial constraints and has a stronger impact when agency problems are contained. Overall, our results are consistent with IPOs moving firms towards a strategy of commercialization that privileges profitability.
Keywords: IPOs, Profitability, Commercialization, Instrumental Variables
JEL Classification: G32
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