Why Do Firms Go Public
WHY DO FIRMS GO PUBLIC?
Forthcoming in the Oxford Handbook of Entrepreneurial Finance
James C. Brau, PhD, CFA Professor of Finance Editor, Journal of Entrepreneurial Finance
July 1, 2010
Department of Finance Marriott School Brigham Young University 640 Tanner Building Provo, Utah 84602 Phone: 801.318.7919 Fax: 801.422.0741
Electronic copy available at: http://ssrn.com/abstract=1649008
WHY DO FIRMS GO PUBLIC?
Six months after he founded Netscape, Clark agitated for the company to go public. The company had few revenues, no profits, and a lot of new employees. No one else inside the company thought it should do anything but keep its head down and try to become a viable enterprise. "Jim was pressing for us to go public way before anyone else," recalls Marc Andreessen. It turned out there was a reason for this. He 'd seen a boat called Juliet. He wanted one just like it, only bigger. To get it, he needed more money. By then the decision was not Clark 's alone to make. The company had hired a big-name CEO, Jim Barksdale, and had a proper board of directors. Barksdale didn 't want to go public. He thought the company had enough problems trying to figure out how to turn a profit without having to explain itself to irate shareholders. But this time Clark had power, through his equity stake. He called a meeting to discuss the initial public offering (IPO), and stacked it with lawyers and bankers who stood to reap big fees from a public share offering and who were, as a result, enthusiastic about his initiative. At that meeting Barksdale finally capitulated. Eighteen months after Netscape was created, and before it had made a dime, Netscape sold shares in itself to the public. On the first day of trading the price of those shares rose from $12 apiece to $48. Three months later it was at $140. It was one of the most successful share offerings in the history of the US stock markets, and possibly the most famous. There was only one explanation for its
Forthcoming in the Oxford Handbook of Entrepreneurial Finance
James C. Brau, PhD, CFA Professor of Finance Editor, Journal of Entrepreneurial Finance
July 1, 2010
Department of Finance Marriott School Brigham Young University 640 Tanner Building Provo, Utah 84602 Phone: 801.318.7919 Fax: 801.422.0741
Electronic copy available at: http://ssrn.com/abstract=1649008
WHY DO FIRMS GO PUBLIC?
Six months after he founded Netscape, Clark agitated for the company to go public. The company had few revenues, no profits, and a lot of new employees. No one else inside the company thought it should do anything but keep its head down and try to become a viable enterprise. "Jim was pressing for us to go public way before anyone else," recalls Marc Andreessen. It turned out there was a reason for this. He 'd seen a boat called Juliet. He wanted one just like it, only bigger. To get it, he needed more money. By then the decision was not Clark 's alone to make. The company had hired a big-name CEO, Jim Barksdale, and had a proper board of directors. Barksdale didn 't want to go public. He thought the company had enough problems trying to figure out how to turn a profit without having to explain itself to irate shareholders. But this time Clark had power, through his equity stake. He called a meeting to discuss the initial public offering (IPO), and stacked it with lawyers and bankers who stood to reap big fees from a public share offering and who were, as a result, enthusiastic about his initiative. At that meeting Barksdale finally capitulated. Eighteen months after Netscape was created, and before it had made a dime, Netscape sold shares in itself to the public. On the first day of trading the price of those shares rose from $12 apiece to $48. Three months later it was at $140. It was one of the most successful share offerings in the history of the US stock markets, and possibly the most famous. There was only one explanation for its
References: Table 2. A Closer Look at Brau and Fawcett (2006a) Motivation Question for IPOs from 2000-2002 Panel A