The Going Public Decision and the Product Market

56 Pages Posted: 25 Feb 2005 Last revised: 20 Jul 2015

See all articles by Thomas J. Chemmanur

Thomas J. Chemmanur

Boston College - Carroll School of Management

Shan He

Oregon State University; Louisiana State University

Debarshi K. Nandy

Brandeis University - International Business School

Multiple version iconThere are 2 versions of this paper

Date Written: July 20, 2009


At what point in a firm’s life should it go public? How do a firm’s ex ante product market characteristics relate to its going public decision? Further, what are the implications of a firm going public on its post-IPO operating and product market performance? In this paper, we answer the above questions by conducting the first large sample study of the going public decisions of U.S. firms in the literature. We use the Longitudinal Research Database (LRD) of the U.S. Census Bureau, which covers the entire universe of private and public U.S. manufacturing firms. Our findings can be summarized as follows. First, a private firm’s product market characteristics (total factor productivity (TFP), size, sales growth, market share, industry competitiveness, capital intensity, and cash flow riskiness) significantly affect its likelihood of going public after controlling for its access to private financing (venture capital or bank loans). Second, private firms facing less information asymmetry and those with projects that are cheaper for outsiders to evaluate are more likely to go public. Third, as more firms in an industry go public, the concentration of that industry increases in subsequent years. The above results are robust to controlling for the interactions between various product market and firm specific variables. Fourth, IPOs of firms occur at the peak of their productivity cycle: the dynamics of TFP and sales growth exhibit an inverted U-shaped pattern, both in our univariate analysis and in our multivariate analysis using firms that remained private throughout as a benchmark. Finally, sales, capital expenditures, and other performance variables exhibit a consistently increasing pattern over the years before and after the IPO. The last two findings are consistent with the view that the widely documented post-IPO operating underperformance of firms is due to the real investment effects of going public rather than being due to earnings management immediately prior to the IPO.

Keywords: Going public decision, product market

JEL Classification: G30, G32

Suggested Citation

Chemmanur, Thomas J. and He, Shan and Nandy, Debarshi K., The Going Public Decision and the Product Market (July 20, 2009). EFA 2005 Moscow Meetings, AFA 2007 Chicago Meetings Paper, Available at SSRN: or

Thomas J. Chemmanur

Boston College - Carroll School of Management ( email )

Finance Department, 436 Fulton Hall
Carroll School of Management, Boston College
Chestnut Hill, MA 02467-3808
United States
617-552-3980 (Phone)
617-552-0431 (Fax)

HOME PAGE: http://

Shan He

Oregon State University ( email )

Corvallis, OR 97331
United States

Louisiana State University ( email )

Baton Rouge, LA 70803
United States

Debarshi K. Nandy (Contact Author)

Brandeis University - International Business School ( email )

Mailstop 32
Waltham, MA 02454-9110
United States

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Abstract Views
PlumX Metrics