Keywords

private firm exits, IPO versus M&A, risk-adjusted premiums

Abstract

Changing disclosure requirements and the evolution of US markets in the 21st century have created historic shifts in the exit strategies and payoffs for private firms. The propensity to sell to an acquirer has dominated firm exits in recent decades, especially for smaller private firms in highly concentrated industries. Exceptions to the merger exit preference are venture capital‐backed firms, which exhibit an enduring preference for IPOs, likely due to the reputation effects associated with this strategy. While the premium for IPO exits has exceeded that for M&A exits in the past, we document a reversal in this pricing trend: in more recent years firms that sell out earn higher risk‐adjusted premiums than firms that conduct IPOs. Our empirical tests examine potential drivers of this effect. We believe we are the first to document this reversal in the economics of the exit decision.

Original Publication Citation

The Impact of Changing Disclosure Requirements, Competition, and Private Capital on Firm Exit Methods and Premiums, with Ninon Sutton and Qian Zheng, Journal of Financial Research.

Document Type

Peer-Reviewed Article

Publication Date

2024

Publisher

Journal of Financial Research

Language

English

College

Marriott School of Business

Department

Finance

University Standing at Time of Publication

Full Professor

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