Resource title

Sequential divestiture through initial public offerings (RV of 2002/23/SM)

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An initial public offering (IPO) is often seen as a natural end state in a firm's development, whereby ownership rights are reallocated to accomplish a financing objective. However, the decision to go public is also an important corporate strategy choice that can have implications for the transfer of control rights. The analysis situates IPOs within an extended MandA process and considers private firms' decisions to undertake an IPO prior to divestiture rather than undergo an outright sale. The authors develop the argument that IPOs can ameliorate ex ante transaction costs in the market for corporate control when search costs are nontrivial and when information asymmetries increase the risk of adverse selection. The empirical evidence suggests that sequential divestiture is more likely in industries with spatially-dispersed firms and for firms with significant intangible resources. Investments in strategic alliances attenuate the impact of intangibles on the propensity of firms to divest sequentially through IPOs.

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en

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application/pdf

Resource resource URL

http://flora.insead.edu/fichiersti_wp/inseadwp2003/2003-38.pdf

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Copyright INSEAD. All rights reserved