Structuring the IPO: Empirical Evidence on the Portions of Primary and Secondary Shares
Posted: 9 Nov 2009
Date Written: 2006
Abstract
Analyzes the factors that determine the portion sizesof primary and secondary shares in initial public offerings (IPO). The articlebegins with a discussion of the main motives for going public and thesubsequent impact on the size of the primary portion (i.e., the fraction of newshares offered relative to the total number of outstanding shares pre-IPO) andsecondary portion (i.e., the ratio of existing shares divested at IPO-timerelative to the number of pre-IPO shares). Next, data on 95 IPO firms in Belgium are described. Spanning the period1984-2000, the data indicate that a firm's choice of floatation structurereveals much about its underlying motives for going public. Younger, smallergrowth firms generally sell primary shares and plan to re-issue new shareslater on. At IPO-time, such firms try to establish a sufficiently deep marketfor their stock. The data also suggest that more established firms tend tooffer secondary shares. These firms show relatively higher post-IPO controlturnover. Finally, while firms that go public because of financing needs rarelyexploit windows of opportunity, owners in secondary offerings exploit windowsof opportunity as they cash in more when historical stock market returns arehigh. (SAA)
Keywords: Firm characteristics, Motivation, Stocks, Initial public offerings (IPO), Control rights, Opportunity development, Market share
Suggested Citation: Suggested Citation