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Go Public or Stay Private: A Theory of Entrepreneurial Choice

Author

Listed:
  • Thakor, Anjan
  • Boot, Arnoud
  • Gopalan, Radhakrishnan

Abstract

In this Paper we analyse an entrepreneur/manager?s choice between private and public ownership in a setting in which management needs some ?elbow room? or autonomy to manage the firm optimally. In public capital markets, the corporate governance regime in place exposes the firm to exogenous controls, so that management may lack the autonomy it desires. By contrast, private ownership can provide management with the desired autonomy due to the possibility of precisely-calibrated private contracting. The disadvantage of private ownership (relative to public ownership) is that it imposes a cost of illiquidity on those who provide financing. We explore this trade-off between managerial autonomy and the cost of capital in a simple setting and draw a number of new testable implications.

Suggested Citation

  • Thakor, Anjan & Boot, Arnoud & Gopalan, Radhakrishnan, 2004. "Go Public or Stay Private: A Theory of Entrepreneurial Choice," CEPR Discussion Papers 4219, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:4219
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    Cited by:

    1. Richard J. Rosen & Scott B. Smart & Chad J. Zutter, 2005. "Why do firms go public? evidence from the banking industry," Working Paper Series WP-05-17, Federal Reserve Bank of Chicago.
    2. Ljungqvist, Alexander & Boehmer, Ekkehart, 2004. "On the decision to go public: Evidence from privately-held firms," Discussion Paper Series 1: Economic Studies 2004,16, Deutsche Bundesbank.

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    More about this item

    Keywords

    Ownership structures; Stockmarket listing;

    JEL classification:

    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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