Initial Public Offerings: An Analysis of Theory and Practice
54 Pages Posted: 16 Apr 2004
Date Written: September 2004
We survey 336 CFOs to compare practice to theory in the areas of IPO motivation, timing, underwriter selection, underpricing, signaling, and the decision to remain private. We find the primary motivation for going public is for acquisition purposes. CFOs base IPO timing on overall market conditions, are well-informed regarding expected underpricing, and feel underpricing compensates investors for taking risk. The most important positive signal is past historical earnings, followed by underwriter certification. CFOs have divergent opinions about the IPO process depending on firm-specific characteristics. Finally, we find the main reason for remaining private is to preserve decision-making control and ownership.
Keywords: Initial public offer, IPO, managerial attitude, survey methodoloy
JEL Classification: G32, G24
Suggested Citation: Suggested Citation