Entrepreneurial Learning, the IPO Decision, and the Post-IPO Drop in Firm Profitability

Lubos Pastor, Lucian Taylor and Pietro Veronesi

No 12792, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We develop a model in which an entrepreneur learns about the average profitability of a private firm before deciding whether to take the firm public. In this decision, the entrepreneur trades off diversification benefits of going public against benefits of private control. The model predicts that firm profitability should decline after the IPO, on average, and that this decline should be larger for firms with more volatile profitability and firms with less uncertain average profitability. These predictions are supported empirically in a sample of 7,183 IPOs in the U.S. between 1975 and 2004.

JEL-codes: G1 G3 (search for similar items in EconPapers)
Date: 2006-12
New Economics Papers: this item is included in nep-bec, nep-cfn, nep-ent and nep-fmk
Note: AP CF
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Citations: View citations in EconPapers (1)

Published as &Lubos Pástor & Lucian A. Taylor & Pietro Veronesi, 2009. "Entrepreneurial Learning, the IPO Decision, and the Post-IPO Drop in Firm Profitability," Review of Financial Studies, Oxford University Press for Society for Financial Studies, vol. 22(8), pages 3005-3046, August.

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Related works:
Journal Article: Entrepreneurial Learning, the IPO Decision, and the Post-IPO Drop in Firm Profitability (2009)
Working Paper: Entrepreneurial Learning, the IPO Decision, and the Post-IPO Drop in Firm Profitability (2007)
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