Initial Public Offering or Initial Private Placement?

Abstract

This paper studies the choice between an auction and a negotiation when selling a large fraction of a company. Using detailed data on ownership structure in 123 public offerings and 88 negotiated private placements, we show that negotiated private placements are much more common when there are significant private benefits of control. This finding supports the idea that a negotiated transaction allow the seller to extract more of the gains from trade when the gains from trade include private benefits.