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

Pietro Veronesi, Pástor, Luboš and Lucian Taylor
Authors registered in the RePEc Author Service: Lubos Pastor

No 6061, CEPR Discussion Papers from Centre for Economic Policy Research

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.

Keywords: Diversification; Ipo; Learning (search for similar items in EconPapers)
JEL-codes: G1 G3 (search for similar items in EconPapers)
Date: 2007-01
New Economics Papers: this item is included in nep-bec, nep-cfn, nep-cse and nep-ent
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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 (2006)
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