Issuing bonds, shares or staying private? Determinants of going public in an emerging economy

Abstract

The Warsaw Stock Exchange is one of Europe’s largest exchanges by the number of initial public offerings. In this study, we use a large data-set to explore firms’ decisions to issue equity on the main or alternative market, and debt on the bond market. We observe that, in general, larger, more profitable firms are more likely to go public, although in contrast to developed economies these firms tend to be younger. Moreover, we find that current market valuation positively affects the decision to go public on the main market, and we establish that highly leveraged companies are more likely to issue either shares on the alternative market or bonds. At the same time, however, we observe that firms issuing shares on the alternative market are most likely to manipulate their profitability prior to going public.

Keywords:

• Going public
• capital markets
• equity
• corporate bonds
• emerging markets

JEL Classification Codes:

• G10
• G15
• G32

Acknowledgements

The authors would like to thank the editor, Richard Connolly, an anonymous referee, Eduardo Engel, Maria Guadalupe, Laura Rondi and the participants at the 13th session of the European School on New Institutional Economics, the World Business, Finance and Management Conference in Auckland for their valuable comments and suggestions. This study was conducted while Oskar Kowalewski was Assistant Professor at the World Economy Research Institute at the Warsaw School of Economics (SGH).

Notes

1. Industries are defined here by the first two digits of the NACE Rev. 2 classification.