The Choice of Outside Equity: An Exploratory Analysis of Privately Held Firms

46 Pages Posted: 3 Nov 2008

See all articles by Ekkehart Boehmer

Ekkehart Boehmer

Singapore Management University - Lee Kong Chian School of Business

Alexander Ljungqvist

Centre for Economic Policy Research (CEPR); Swedish House of Finance; European Corporate Governance Institute (ECGI)

Multiple version iconThere are 2 versions of this paper

Date Written: April 2001

Abstract

We analyze the choice between public and private equity financing of a unique, hand-collected sample of privately held firms that have indicated their willingness to raise outside equity. We document that these firms are remarkably similar at the time of the announcement, yet 71% complete an IPO, 18% sell equity privately, and the remaining firms do not raise capital at all. To understand what determines the ultimate outcome, we follow these firms over time and record what they might learn up to their final decision. We identify the marginal conditions that favor raising outside equity,and those that determine the choice between public and private equity. Our results show that firms react systematically to changes in market conditions, such as equity returns and the cost of capital, that occur after the announcement, controlling for capital constraints, ownership structure, and themotivation for raising outside capital.

Keywords: Capital structure, capital constraints, private equity, going public decision

Suggested Citation

Boehmer, Ekkehart and Ljungqvist, Alexander and Ljungqvist, Alexander, The Choice of Outside Equity: An Exploratory Analysis of Privately Held Firms (April 2001). NYU Working Paper No. FIN-01-004, Available at SSRN: https://ssrn.com/abstract=1294461

Ekkehart Boehmer (Contact Author)

Singapore Management University - Lee Kong Chian School of Business ( email )

Singapore

Alexander Ljungqvist

Swedish House of Finance ( email )

Drottninggatan 98
111 60 Stockholm
Sweden

Centre for Economic Policy Research (CEPR)

London
United Kingdom

European Corporate Governance Institute (ECGI)

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

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