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Structuring the IPO: Empirical Evidence on the Primary and Secondary Portion

We empirically study the forces that drive the primary and secondary portion of the shares placed in public during IPOs. Simultaneously, the results shed additional light on the motives for going public. The data show that the need for additional equity underlies primary and combined offerings. Firms use combined offerings to enhance market liquidity, whereby information gathering by institutional investors is stimulated. Pre-allocation and post-IPO data on market liquidity and seasoned equity offerings support these arguments. Somewhat surprisingly, the diversification motive does not drive the size of the secondary portion; however, secondary offerings show relatively higher control turnover post-IPO.