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Why Do Startups Become Unicorns Instead of Going Public?

Author

Listed:
  • Davydova, Daria

    (Ecole Polytechnique Federale de Lausanne)

  • Fahlenbrach, Rudiger

    (Ecole Polytechnique Federale de Lausanne and ECGI)

  • Sanz, Leandro

    (Ohio State U)

  • Stulz, Rene M.

    (Ohio State U and ECGI)

Abstract

Unicorns are startups that choose to stay private even though they are large enough to go public. We propose an efficiency explanation for their existence. Startups relying highly on organization capital are more vulnerable to expropriation of their organization capital if they go public before their position is sufficiently secure. Our main empirical findings are that shocks to the fragility of organization capital decrease the IPO likelihood, unicorn status enables startups to stay private longer by giving them access to new sources of capital, and unicorns and their industries have higher organization capital intensity than other startups.

Suggested Citation

  • Davydova, Daria & Fahlenbrach, Rudiger & Sanz, Leandro & Stulz, Rene M., 2024. "Why Do Startups Become Unicorns Instead of Going Public?," Working Paper Series 2024-10, Ohio State University, Charles A. Dice Center for Research in Financial Economics.
    • Handle: RePEc:ecl:ohidic:2024-10
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    JEL classification:

    • G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance

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