Published online by Cambridge University Press: 27 March 2018
Using unique U.S. Census data sets, we analyze how entrepreneurial firms’ product market characteristics affect their choice between going public, being acquired, or remaining private. Size, total factor productivity (TFP), sales growth, capital expenditure, market share, access to private funding, and human capital intensiveness significantly increase a private firm’s likelihood of an initial public offering (IPO) relative to an acquisition. Firms in industries with less information asymmetry and higher stock liquidity are more likely to choose an IPO over an acquisition. While TFP peaks around either form of exit, the rate of increase in TFP prior to acquisitions and the subsequent decrease is smaller than that around IPOs.
An earlier version of the paper was circulated under the title “The Exit Choices of Entrepreneurial Firms.” For helpful comments or discussions, we thank an anonymous referee, Melissa Ruby Banzhaf, Onur Bayar, Lauren Cohen, Jim Davis, Bill Francis, Julie Hotchkiss, Karthik Krishnan, Paul Malatesta (the editor), Marc Martos-Vila, Jeff Netter, Jay Ritter, Rene Stulz, Xuan Tian, Sheridan Titman, and Chad Zutter. We also thank conference participants at the 2015 Financial Intermediation Research Society Conference, the 2014 Conference on Entrepreneurship and Finance at HKUST, the 2012 American Finance Association Meetings, the 2012 Atlanta Research Data Center Conference, the 2011 Duke/Kauffman Entrepreneurship Conference, and the 2010 Financial Management Association Meetings, and seminar participants at Boston College, Louisiana State University, and the University of Georgia for helpful comments. Chemmanur acknowledges summer support from Boston College and additional financial support from a Hillenbrand Distinguished Fellowship. The research presented in this paper was conducted while the authors were special sworn status researchers at the Boston Research Data Center of the U.S. Census Bureau. Any opinions and conclusions expressed herein are those of the authors and do not necessarily represent the views of the U.S. Census Bureau. All results have been reviewed to ensure that no confidential information is disclosed. Any errors and omissions are the responsibility of the authors.