What are the consequences of going public? Evidence from the IPOs in Italy and in the UK

This paper tests the consequences of the going public decision. The empirical base is provided by the IPOs that took place in Italy and in the UK in the last decade. We believe that the comparison between the Italian Exchange and the London Stock Exchange draws attention to some of the differences between the equity markets of continental Europe and those of the Anglo-Saxon countries. We find that firms go public in Italy at a later stage of their life, when they have already reached a critical size. On both markets, the flotation is typically used to overcome borrowing constraints. The main difference between the LSE and Borsa Italiana is that companies going public on the LSE usually use the capital raised at the IPO to rebalance their capital structure, while companies going public on Borsa Italiana use the IPO as a mean to temporary lower their debt exposure and then access to further debt on an improved bargaining position with banks. Our findings also validate the window-dressing explanation of the post-IPO operating underperformance.