Pre-IPO Operational and Financial Decisions

Volodymyr Babich () and Matthew J. Sobel ()
Additional contact information
Volodymyr Babich: Industrial and Operations Engineering Department, University of Michigan, Ann Arbor, Michigan 48109
Matthew J. Sobel: Department of Operations, Weatherhead School of Management, Case Western Reserve University, Cleveland, Ohio 44106

Management Science, 2004, vol. 50, issue 7, 935-948

Abstract: Many owners of growing privately held firms make operational and financial decisions in an effort to maximize the expected present value of the proceeds from an initial public offering (IPO). We ask: ÜWhat is the right time to make an IPO?Ý and ÜHow should operational and financial decisions be coordinated to increase the likelihood of a successful IPO?Ý Financial and operational decisions in this problem are linked because adequate financial capital is crucial for operational decisions to be feasible and operational decisions affect the firm's access to financial resources. The IPO event is treated as a stopping time in an infinite-horizon discounted Markov decision process. Unlike traditional stopping-time models, at every stage the model includes other decisions such as production, sales, and loan size. The results include (1) characterization of an optimal capacity-expansion policy, (2) sufficient conditions for a monotone threshold rule to yield an optimal IPO decision, and (3) algorithmic implications of results in (1) and (2).

Keywords: stopping; initial public offering; capacity expansion; finance and operations; entrepreneurship; operations and finance; nonstandard objective; bank financing; Markov decision processes (search for similar items in EconPapers)
Date: 2004
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (49)

Downloads: (external link)
http://dx.doi.org/10.1287/mnsc.1040.0252 (application/pdf)

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:inm:ormnsc:v:50:y:2004:i:7:p:935-948

Access Statistics for this article

More articles in Management Science from INFORMS Contact information at EDIRC.
Bibliographic data for series maintained by Chris Asher ().