Initial Public Debt Offerings

Abstract

We analyze a sample of private firms that choose to go public through an initial public debt offering (IPDO) as an alternative to going public through equity (IPO). These IPDO firms, which have never been analyzed in the prior literature, are more likely to be sponsor backed, significantly larger, and less likely to face information asymmetry than traditional IPO firms. Their debt issues are more expensive and face more restrictive covenants than initial debt issues by publicly listed peers. When these debt-first firms eventually go public, they face lower underpricing than firms without public debt at IPO. Overall, our results are consistent with the hypotheses that ownership structure and the relative informativeness of reported financial statements in different markets drive the decision of where to go public.