The stock market as a source of capital: Some lessons from initial public offerings in Italy

Abstract

This paper complements the analysis of the decision to go public contained in Pagano et al. (1995). We compare a larger set of Italian initial public offerings, including holding companies, with size-matched private companies. Even in this larger sample we find evidence that: 1. (i) the new equity capital raised upon listing is not used to finance subsequent investment and growth; 2. (ii) going public reduces the cost of credit; 3. (iii) it is often associated with equity sales by controlling shareholders, and is followed by a higher turnover of control than for other companies. A novel finding is that the funds raised are used to purchase stakes in other companies and other financial assets.