Going public in the 1980s: Evidence from Sweden

Abstract

The paper explores the going public decision in a sample of family-owned corporations in Sweden, 1970-1991. the issuers' motivations for going public are documented and contrasted with economic theory. We find that the average firm is old, that a significant portion of the shares are sold by existing shareholders, that most going public activity took place after an exceptionally sharp stock price increase, and that going public activity is not related to the business cycle. the findings suggest that firms were taken public by their owners who wanted to liquidate their investment to finance consumption or portfolio diversification. the findings strike the common view that firms go public to finance growth. Data from other European countries exhibit similar patterns and suggest that our findings for Sweden may extend to other markets as well. Copyright Blackwell Publishers Ltd. 1995.

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“…These observations are supported by a great deal of recent empirical evidence about the segmentation of the market for shares (Barry et al 1990;Brennan and Franks 1995;Hanley and Wilhelm 1995;Holderness and Sheehan 1988;Pagano et al 1996;Rydqvist and Högholm 1994). This literature shows that firms manage the sale of shares with the purpose of discriminating between relatively small and passive investors and applicants for large blocks (Brennan and Franks 1995).…”

“…Later on these investors sell a significant portion of their stakes, either to another active investor or to another company or through a follow-on offering. Control turnover subsequent to the IPO is also found by Holderness and Sheehan (1988) for the U.S., Rydqvist and Högholm (1994) for Sweden and the U.K., and Pagano et al (1998) for Italy. This also seems to be the case in many equity carve-outs, according to Schipper and Smith (1986) and Klein et al (1991).…”

“…For example, it has been observed that the IPO of shares is not an isolated step but part of a more elaborate process for selling shares (e.g. Barry et al 1990;Holderness and Sheehan 1988;Rydqvist andHögholm 1994, Pagano et al 1998). Also, control turnover subsequent to the IPO is found to be the case in many equity carve-outs (Schipper and Smith 1986;Klein et al 1991).…”

The Geography of Equity Listing: Why Do European Companies List Abroad?

“…The contrast between these two groups is reminiscent of the contrast between European and US companies' domestic IPOs, documented by Pagano, Panetta and Zingales (1998), Planell (1995), Rydqvist and Högholm (1995) and Mikkelson, Partch and Shah (1997). These studies, respectively conducted on Italian, Spanish, Swedish and US panel data, investigate the characteristics and behavior that distinguish companies listing for the first time (on their domestic market) from those that decide to stay private.…”

The Price of Rapid Exit in Venture Capital-Backed IPOs

“…In contrast, in periods when there are few and less profitable investment opportunities, exiting investors retain a larger fraction of shares and underprice less. 5 The idea of waves of quick and costly disinvestment is in line with many empirical studies finding that during hot issue markets firms taken public are usually younger and less established (see Lowry and Schwert (2002) and Loughran and Ritter (2004) for US firms and Rydqvist and Hogholm (1995) and Giudici and Roosenboom (2004) for European firms).…”