Why do public firms issue private and public securities?

Abstract

a b s t r a c tThe market for public firms issuing private equity, debt, and convertible securities is large. Of the over 13,000 issues we examine, more than half are in the private market. Our results show asymmetric information plays a major role in the choice of security type within public and private markets and in the choice of market in which to issue securities. In the public market, firms' predicted probability of issuing equity declines and issuing debt increases with measures of asymmetric information. There is a weak reversal of this sensitivity in the private market. We also find a large sensitivity of the choice of public versus private markets to asymmetric information, risk and market timing for debt, convertibles, and in particular, equity issues.

Equity Issuance and Corporate Dividend Policy in Emerging Economy Context

“…How we can explain this? Based on the findings of previous research [Gomes and Phillips, 2005], we could explain this by the high capitalization of banks compared to non-financial enterprises. Indeed, all the banks in the sample of this study, except two banks, met the listing criteria related to net asset value in 2011 (Figure 3).…”

“…86.1% joint stock companies, included in sample 1, have selected private equity placement, in particular 87.5% -in the non-financial sector, whereas in countries with developed stock markets, almost half of the issues by public firms are the public offerings [Gomes and Phillips 2005]. The use of the above-mentioned algorithm allowed us to estimate the importance of factors which determine equity issuance type.…”

“…Recent studies have shown that in countries with developed stock markets, almost half of the issues by public firms are public offerings [Gomes and Phillips 2005]. Private placement is mainly typical for small businesses.…”

“…Given the fact that the shares of small public companies generally underestimated by the stock market, it is clear why these issuers give preference to the private equity placement. The earning performance and rising cost of shares in the period preceding the additional issue, on the contrary, increases the likelihood of a public equity offering [Dewa and Izani 2010, Gomes and Phillips 2005, Goh et al 1999, Lee and Kocher 2001.…”

“…87.5 per cent of companies opted private placements. Thus, Ukrainian public joint stock companies select private placements of shares more often than in countries with developed stock markets [Gomes and Phillips 2005].…”