[[{“value”:”Does reducing the number of firms in public equity markets harm investors? How much has the value firms can get from going public changed in the past few decades? I develop a dynamic supply and demand model of the firm entry to and exit from public markets to relate firm benefits from being public to
The post Who Wins and Who Loses when Firms Stay Private Longer? appeared first on Marginal REVOLUTION.”}]]
Does reducing the number of firms in public equity markets harm investors? How much has the value firms can get from going public changed in the past few decades? I develop a dynamic supply and demand model of the firm entry to and exit from public markets to relate firm benefits from being public to firm characteristics. Firms face a dynamic discrete choice problem on whether to be in public markets, with the benefits of being public a function of their characteristics, demand elasticities for their characteristics, and various regulatory and cost of capital changes. My structural analysis allows me to not only break down the causes of the transformation in US public equity markets, but also to say what the consequences of them have been for firms and investors. I find that investors would have had slightly higher excess returns but no change in their portfolio Sharpe ratio if firms behaved as they did before Sarbanes-Oxley. I further find that a private firm’s implied option value of going public has fallen by over half since the pre-Sarbanes era. The reduction is mostly caused by an increase to fixed costs of being a public company in the post-Sarbanes era.
That is from the job market paper of Leo Stanek, from the University of Minnesota.
The post Who Wins and Who Loses when Firms Stay Private Longer? appeared first on Marginal REVOLUTION.
Economics, Uncategorized
Leave a Reply