Divestment, Entrepreneurial Incentives and the Decision to go Public

W.B. Wagner

Research output: Working paperDiscussion paperOther research output

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Abstract

This paper develops a theory of the life cycle of the firm based on incentive constraints.The optimal sale of the firm is restricted by entrepreneurial moral hazard and a lack of commitment regarding future divestment.This leads to a dynamic inefficiency that causes the entrepreneur to delay and to stagger the sale of the firm.The analysis provides a common explanation for a range of empirical phenomena related to initial public offerings (IPO's), such as the waiting time until firms go public, lock-up periods, operating underperformance of IPO's and post-IPO divestment.The equilibrium divestment process is shown to be (constrained) inefficient: entrepreneurs sell too late and too much of the firm.Recommendations for financial regulation that restore efficiency are derived.
Original languageEnglish
Place of PublicationTilburg
PublisherMacroeconomics
Number of pages23
Volume2002-47
Publication statusPublished - 2002

Publication series

NameCentER Discussion Paper
Volume2002-47

Fingerprint

Divestment
Incentives
Initial public offerings
Entrepreneurs
Financial regulation
Underperformance
Life cycle
Moral hazard
Dynamic inefficiency
Waiting time

Keywords

  • incentives
  • IPO

Cite this

Wagner, W. B. (2002). Divestment, Entrepreneurial Incentives and the Decision to go Public. (CentER Discussion Paper; Vol. 2002-47). Tilburg: Macroeconomics.
Wagner, W.B. / Divestment, Entrepreneurial Incentives and the Decision to go Public. Tilburg : Macroeconomics, 2002. (CentER Discussion Paper).
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Wagner, WB 2002 'Divestment, Entrepreneurial Incentives and the Decision to go Public' CentER Discussion Paper, vol. 2002-47, Macroeconomics, Tilburg.

Divestment, Entrepreneurial Incentives and the Decision to go Public. / Wagner, W.B.

Tilburg : Macroeconomics, 2002. (CentER Discussion Paper; Vol. 2002-47).

Research output: Working paperDiscussion paperOther research output

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Wagner WB. Divestment, Entrepreneurial Incentives and the Decision to go Public. Tilburg: Macroeconomics. 2002. (CentER Discussion Paper).