Selling out or going public? A real options signaling approach

Michi Nishihara

Finance Research Letters, 2017, vol. 22, issue C, 146-152

Abstract: We examine a dynamic model in which a firm chooses between selling out and going public under asymmetric information. Suppose that the firm prefers to sell out under symmetric information. Under asymmetric information, we have a separating equilibrium in which the high-growth firm goes public earlier while the low-growth firm follows the first-best sales policy because the high-growth firm signals to market investors by doing an IPO. This result is consistent with the empirical evidence. The model also yields implications about the effects of asymmetric information and cash flow volatility on the decisions.

Keywords: IPO; Signaling; Real options; Asymmetric information; Acquisition; Earnout (search for similar items in EconPapers)
JEL-codes: D82 G31 G34 (search for similar items in EconPapers)
Date: 2017
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S1544612316303105
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:finlet:v:22:y:2017:i:c:p:146-152

DOI: 10.1016/j.frl.2017.04.003

Access Statistics for this article

Finance Research Letters is currently edited by R. Gençay

More articles in Finance Research Letters from Elsevier
Bibliographic data for series maintained by Catherine Liu ().