Why Do Companies Go Public? Evidence from the Prague Stock Exchange

Abstract

Objective: In this paper, we intend to contribute evidence in regard to going public motivation on a sample of companies that launched an IPO at the Prague Stock Exchange between 2004 and 2017.

Research Design & Methods: In order to evaluate the prevailing motives for the IPO launch, we design and apply a set of composite indicators the values of which may be understood as an indication of the extent to which IPO launch motives originate in the zone of the issuing company’s needs or in the zone of interest of its owner (owners).

Findings: Our main conclusion is that the dominant going public motivation is to allow current shareholders to cash out and to enhance the company´s publicity and image.

Implications & Recommendations: Since the study disclosed that the prevailing motive of primary issues at the Prague Stock Exchange was the exit of investors and enhancing publicity and image we suggest that companies launching the Prague Stock Exchange in recent years were predominantly determined by non-financial aspects. Thus, the research findings represent substantial implications for issuers, investment bankers, the stock exchange, and macroeconomic policy makers when the concept of incentive schemes how to increase the attractiveness of the local capital market will be proposed.

Contribution & Value Added: Our set of composite indicators allows assessing not only the predominant IPO motive zone, but also measuring the intensity of the motives. This helps to better understand the urgency of the needs of the issuing companies satisfied by the IPO implementation.

Keywords

Financial Economics, IPO, Prague Stock Exchange, IPO motivation

Author Biography

Martina Skalická

Martina Skalická is an assistance professor at the Brno University of Technology, Faculty of Business and Management. Her research interests include corporate economics, in particular private and public equity.

Correspondence to: Martina Skalická, Brno University of Technology, Faculty of Business and Management, Kolejní 2906/4, 612 00 Brno, Czech Republic, e-mail: skalicka@fbm.vutbr.cz

Marek Zinecker

Marek Zinecker is an associate professor at the Brno University of Technology, Faculty of Business and Management. His research interests include macroeconomics and international economics.

Correspondence to: Marek Zinecker, Brno University of Technology, Faculty of Business and Management, Kolejní 2906/4, 612 00 Brno, Czech Republic, e-mail: zinecker@fbm.vutbr.cz

Adam P. Balcerzak

Adam P. Balcerzak is an assistance professor at the Nicolaus Copernicus University, Faculty of of Economic Sciences and Management. His research interests include macroeconomics and financial markets.

Tomáš Meluzín

Tomáš Meluzín is an associate professor at the Brno University of Technology, Faculty of Business and Management. His research interests include corporate economics and capital markets.

Correspondence to: Tomáš Meluzín, Brno University of Technology, Faculty of Business and Management, Kolejní 2906/4, 612 00 Brno, Czech Republic, e-mail: meluzint@fbm.vutbr.cz