An analysis about why a firm relies on IPOs for the purpose of expanding their financial horizon can be analyzed from Blackburn’s(2006) work, which presents the importance of financialization and how the economy should move from totally privatized one to one which encourages the growth of the national economy and help in its foray into the international markets.
An analysis of Ritter and Welch’s (2002) work described three aspects as to why a company would go public. The first formal theory of the going public decision appeared in Zingales (1995). He observed that it is much easier for a potential acquirer to spot a potential takeover target when it is public. Moreover, entrepreneurs realize that acquirers can pressure targets on pricing concessions more than they can pressure outside investors. By going public, entrepreneurs thus help facilitate the acquisition of their company for a higher value than what they would get from an outright sale. In contrast, Black and Gilson(1998) point out that entrepreneurs often regain control from the venture capitalists in venture-capital-backed companies at the IPO. Thus, many IPOs are not so much exits for the entrepreneur as they are for the venture capitalists. Later, Chemmanur and Fulghieri (1999) develop the more conventional wisdom that IPOs allow more dispersion of ownership, with its advantages and disadvantages. Venture capitalists hold undiversified portfolios, and, therefore, are not willing to pay as high a price as diversified public-market investors. There are fixed costs associated with going public, however, and proprietary information cannot be costlessly revealed—after all, small investors cannot take a tour of the firm and its secret inventions. Thus, early in its life cycle, a firm will be private, but if it ...