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E-MailThis post is from Michael S. Weisbach of Fisher College of Business at The Ohio State University.
I have recently posted my article Motivations for Public Equity Offers: An International Perspective, coauthored with Woojin Kim. The article examines the reasons that firms tap public equity markets by analyzing the ultimate uses of the funds raised through both initial public offerings (IPOs) and seasoned equity offerings (SEOs) in 38 countries between 1990 and 2003.
It seems that firms spend the money raised mostly on capital expenditures and R&D, suggesting that demand for capital to finance investments is indeed an important motivation behind public equity offers. On the other hand, some firms seem to take advantage of mispricing in the market by hoarding more cash and offering more old shares–potentially held by insiders–when market valuation is high relative to accounting numbers. In short, both market timing as well as investment financing seem to drive firms to engage in public offerings.
The full article is available here.
