The Effects of Going Public on Firm Performance and Strategy: Evidence from International IPOs

47 Pages Posted: 21 Apr 2021

See all articles by Borja Larrain

Borja Larrain

Pontificia Universidad Catolica de Chile

Gordon M. Phillips

Dartmouth College - Tuck School of Business; National Bureau of Economic Research (NBER)

Giorgo Sertsios

Universidad de los Andes, Chile

Francisco Urzúa I.

City University London - Sir John Cass Business School

Date Written: April 20, 2021

Abstract

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

Suggested Citation

Larrain, Borja and Phillips, Gordon M. and Sertsios, Giorgo and Urzua, Francisco, The Effects of Going Public on Firm Performance and Strategy: Evidence from International IPOs (April 20, 2021). Tuck School of Business Working Paper No. 3830690, Available at SSRN: https://ssrn.com/abstract=3830690 or http://dx.doi.org/10.2139/ssrn.3830690

Borja Larrain (Contact Author)

Pontificia Universidad Catolica de Chile ( email )

Ave. Vicuna Mackenna 4860, Macul
Santiago
Chile

HOME PAGE: http://economiayadministracion.uc.cl/personal/blarrain/

Gordon M. Phillips

Dartmouth College - Tuck School of Business ( email )

Hanover, NH 03755
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Giorgo Sertsios

Universidad de los Andes, Chile ( email )

Mons. Álvaro del Portillo
Las Condes
Santiago, 12.455
Chile

Francisco Urzua

City University London - Sir John Cass Business School ( email )

106 Bunhill Row
London, EC1Y 8TZ
United Kingdom

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